In This Article:
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Inchcape plc (LON:INCH) 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Inchcape's shares on or after the 3rd of August will not receive the dividend, which will be paid on the 1st of September.
The company's next dividend payment will be UK£0.096 per share. Last year, in total, the company distributed UK£0.29 to shareholders. Based on the last year's worth of payments, Inchcape stock has a trailing yield of around 3.5% on the current share price of £8.19. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Inchcape
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Inchcape paid out 54% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Inchcape generated enough free cash flow to afford its dividend. Fortunately, it paid out only 30% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 fall far enough, the company could be forced to cut its dividend. So we're not too excited that Inchcape's earnings are down 3.3% 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. Inchcape has delivered 9.7% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.