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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 Xylem Inc. (NYSE:XYL) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Xylem's shares before the 20th of November in order to receive the dividend, which the company will pay on the 19th of December.
The company's next dividend payment will be US$0.33 per share, and in the last 12 months, the company paid a total of US$1.32 per share. Based on the last year's worth of payments, Xylem stock has a trailing yield of around 1.3% on the current share price of $101.2. If you buy this business for its dividend, you should have an idea of whether Xylem's dividend is reliable and sustainable. As a result, readers should always check whether Xylem has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Xylem
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. Xylem paid out 53% of its earnings to investors last year, a normal payout level for most businesses. 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 54% of its free cash flow as dividends, within the usual range for most companies.
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.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Xylem, with earnings per share up 2.1% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.