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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Dunelm Group plc (LON:DNLM) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Dunelm Group's shares before the 13th of March in order to be eligible for the dividend, which will be paid on the 8th of April.
The company's next dividend payment will be UK£0.515 per share, and in the last 12 months, the company paid a total of UK£0.79 per share. Last year's total dividend payments show that Dunelm Group has a trailing yield of 8.2% on the current share price of UK£9.62. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Dunelm Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Dunelm Group is paying out an acceptable 59% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Dunelm Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 29% of its free cash flow in the past year.
It's positive to see that Dunelm Group'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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Dunelm Group earnings per share are up 8.5% per annum over the last five years. Decent historical earnings per share growth suggests Dunelm Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.