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Bath & Body Works, Inc. (NYSE:BBWI) stock is about to trade ex-dividend in 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Bath & Body Works' shares before the 21st of February in order to be eligible for the dividend, which will be paid on the 7th of March.
The company's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Based on the last year's worth of payments, Bath & Body Works stock has a trailing yield of around 2.2% on the current share price of US$36.47. 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! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Bath & Body Works
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bath & Body Works paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Bath & Body Works generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Bath & Body Works'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Bath & Body Works's earnings per share have risen 13% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.