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It looks like Britvic plc (LON:BVIC) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 17th of December will not receive the dividend, which will be paid on the 3rd of February.
Britvic's next dividend payment will be UK£0.22 per share, and in the last 12 months, the company paid a total of UK£0.22 per share. Calculating the last year's worth of payments shows that Britvic has a trailing yield of 2.7% on the current share price of £7.985. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Britvic has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Britvic
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Britvic paid out 61% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Britvic generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% of its free cash flow in the past year.
It's positive to see that Britvic's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Britvic's earnings per share have been shrinking at 3.2% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Britvic has delivered an average of 2.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
Should investors buy Britvic for the upcoming dividend? 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. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.