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Readers hoping to buy Grainger plc (LON:GRI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Grainger's shares before the 30th of December to receive the dividend, which will be paid on the 14th of February.
The company's upcoming dividend is UK£0.033 a share, following on from the last 12 months, when the company distributed a total of UK£0.051 per share to shareholders. Last year's total dividend payments show that Grainger has a trailing yield of 1.7% on the current share price of £3.106. 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! As a result, readers should always check whether Grainger has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Grainger
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. Grainger paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Grainger generated enough free cash flow to afford its dividend. Luckily it paid out just 25% of its free cash flow last 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Grainger's earnings per share have been shrinking at 3.8% a year over the previous five years.
Grainger also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.