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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 Ecolab Inc. (NYSE:ECL) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Ecolab's shares on or after the 18th of September will not receive the dividend, which will be paid on the 16th of October.
The company's next dividend payment will be US$0.53 per share. Last year, in total, the company distributed US$2.12 to shareholders. Looking at the last 12 months of distributions, Ecolab has a trailing yield of approximately 1.2% on its current stock price of $182.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Ecolab can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Ecolab
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ecolab is paying out an acceptable 51% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Ecolab generated enough free cash flow to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.
It's positive to see that Ecolab'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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Ecolab's earnings are down 4.5% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ecolab has delivered an average of 8.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.