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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 Intertek Group plc (LON:ITRK) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Intertek Group's shares before the 27th of May in order to receive the dividend, which the company will pay on the 18th of June.
The company's next dividend payment will be UK£0.72 per share. Last year, in total, the company distributed UK£1.06 to shareholders. Based on the last year's worth of payments, Intertek Group has a trailing yield of 1.8% on the current stock price of £58.46. If you buy this business for its dividend, you should have an idea of whether Intertek Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Intertek Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Intertek Group paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Intertek Group'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Intertek Group has grown its earnings rapidly, up 36% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.