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The Berkeley Group Holdings plc (LON:BKG) stock is about to trade ex-dividend in three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Berkeley Group Holdings investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 26th of July.
The company's upcoming dividend is UK£0.33 a share, following on from the last 12 months, when the company distributed a total of UK£0.66 per share to shareholders. Looking at the last 12 months of distributions, Berkeley Group Holdings has a trailing yield of approximately 1.4% on its current stock price of UK£47.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Berkeley Group Holdings can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Berkeley Group Holdings
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. Berkeley Group Holdings is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Berkeley Group Holdings generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Berkeley Group Holdings'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 shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Berkeley Group Holdings's earnings per share have fallen at approximately 6.3% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.