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Greif, Inc. (NYSE:GEF) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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 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. Thus, you can purchase Greif's shares before the 16th of December in order to receive the dividend, which the company will pay on the 1st of January.
The company's next dividend payment will be US$0.54 per share, on the back of last year when the company paid a total of US$2.08 to shareholders. Based on the last year's worth of payments, Greif stock has a trailing yield of around 3.0% on the current share price of US$68.38. If you buy this business for its dividend, you should have an idea of whether Greif's dividend is reliable and sustainable. So we need to investigate whether Greif can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Greif
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Greif has a low and conservative payout ratio of just 9.2% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 71% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Greif'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Greif earnings per share are up 9.4% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.