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It looks like Kingfisher plc (LON:KGF) is about to go ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a 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. Therefore, if you purchase Kingfisher's shares on or after the 22nd of May, you won't be eligible to receive the dividend, when it is paid on the 30th of June.
The company's next dividend payment will be UK£0.086 per share. Last year, in total, the company distributed UK£0.12 to shareholders. Based on the last year's worth of payments, Kingfisher has a trailing yield of 4.0% on the current stock price of UK£3.108. 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 check whether the dividend payments are covered, and if earnings are growing.
We've discovered 3 warning signs about Kingfisher. View them for free.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Kingfisher distributed an unsustainably high 123% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Kingfisher generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Kingfisher fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
See our latest analysis for Kingfisher
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Kingfisher's earnings have been skyrocketing, up 94% per annum for the past five years.