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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Koninklijke Philips N.V. (AMS:PHIA) is about to trade ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Koninklijke Philips' shares before the 14th of May in order to receive the dividend, which the company will pay on the 3rd of June.
The company's next dividend payment will be €0.85 per share, and in the last 12 months, the company paid a total of €0.85 per share. Calculating the last year's worth of payments shows that Koninklijke Philips has a trailing yield of 4.0% on the current share price of €21.43. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Koninklijke Philips lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. A useful secondary check can be to evaluate whether Koninklijke Philips generated enough free cash flow to afford its dividend. It paid out 0.7% of its free cash flow as dividends last year, which is conservatively low.
See our latest analysis for Koninklijke Philips
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Koninklijke Philips's 24% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Koninklijke Philips has delivered an average of 1.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.