In This Article:
Linamar Corporation (TSE:LNR) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Linamar investors that purchase the stock on or after the 22nd of November will not receive the dividend, which will be paid on the 2nd of December.
The company's next dividend payment will be CA$0.25 per share. Last year, in total, the company distributed CA$1.00 to shareholders. Last year's total dividend payments show that Linamar has a trailing yield of 1.6% on the current share price of CA$61.23. If you buy this business for its dividend, you should have an idea of whether Linamar's dividend is reliable and sustainable. So we need to investigate whether Linamar can afford its dividend, and if the dividend could grow.
See our latest analysis for Linamar
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Linamar is paying out just 2.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Linamar generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.
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?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Linamar's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.