Superior Group of Companies, Inc. (NASDAQ:SGC) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Superior Group of Companies' shares on or after the 16th of August will not receive the dividend, which will be paid on the 30th of August.

The company's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.56 per share to shareholders. Calculating the last year's worth of payments shows that Superior Group of Companies has a trailing yield of 4.4% on the current share price of US$12.65. If you buy this business for its dividend, you should have an idea of whether Superior Group of Companies's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Superior Group of Companies generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Superior Group of Companies's earnings per share have fallen at approximately 10% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Superior Group of Companies has increased its dividend at approximately 7.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Superior Group of Companies is already paying out 80% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Is Superior Group of Companies an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Superior Group of Companies from a dividend perspective.

If you want to look further into Superior Group of Companies, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Superior Group of Companies and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.