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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 Mercedes-Benz Group AG (ETR:MBG) is about to trade ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Mercedes-Benz Group's shares on or after the 8th of May, you won't be eligible to receive the dividend, when it is paid on the 12th of May.
The company's next dividend payment will be €4.30 per share, and in the last 12 months, the company paid a total of €4.30 per share. Last year's total dividend payments show that Mercedes-Benz Group has a trailing yield of 8.1% on the current share price of €53.30. If you buy this business for its dividend, you should have an idea of whether Mercedes-Benz Group's dividend is reliable and sustainable. As a result, readers should always check whether Mercedes-Benz Group has been able to grow its dividends, or if the dividend might be cut.
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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. Mercedes-Benz Group paid out a comfortable 42% of its profit last year. A useful secondary check can be to evaluate whether Mercedes-Benz Group generated enough free cash flow to afford its dividend. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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.
View our latest analysis for Mercedes-Benz Group
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Mercedes-Benz Group's earnings have been skyrocketing, up 37% per annum for the past five years.