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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 Bath & Body Works, Inc. (NYSE:BBWI) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Bath & Body Works' shares before the 18th of November in order to receive the dividend, which the company will pay on the 3rd of December.
The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Based on the last year's worth of payments, Bath & Body Works has a trailing yield of 0.8% on the current stock price of $74.85. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Bath & Body Works
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bath & Body Works has a low and conservative payout ratio of just 2.3% of its income after tax. A useful secondary check can be to evaluate whether Bath & Body Works generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 2.1% of its cash flow last year.
It's positive to see that Bath & Body Works'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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Bath & Body Works's earnings per share have risen 10% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.