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Readers hoping to buy E.ON SE (ETR:EOAN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase E.ON's shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 22nd of May.
The company's next dividend payment will be €0.51 per share, on the back of last year when the company paid a total of €0.51 to shareholders. Based on the last year's worth of payments, E.ON has a trailing yield of 4.2% on the current stock price of €12.07. 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 investigate whether E.ON can afford its dividend, and if the dividend could grow.
View our latest analysis for E.ON
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. E.ON paid out 73% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 23% of its free cash flow in the last year.
It's positive to see that E.ON'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see E.ON's earnings per share have dropped 17% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. E.ON's dividend payments per share have declined at 6.5% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.