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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 DFS Furniture plc (LON:DFS) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase DFS Furniture's shares on or after the 18th of April, you won't be eligible to receive the dividend, when it is paid on the 30th of May.
The company's next dividend payment will be UK£0.011 per share, and in the last 12 months, the company paid a total of UK£0.045 per share. Calculating the last year's worth of payments shows that DFS Furniture has a trailing yield of 4.0% on the current share price of UK£1.124. If you buy this business for its dividend, you should have an idea of whether DFS Furniture's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for DFS Furniture
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. DFS Furniture paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 3.3% of its cash flow last year.
It's positive to see that DFS Furniture'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?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see DFS Furniture's earnings per share have been shrinking at 2.6% a year over the previous five years.