Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see LDCSA (EPA:LOUP) is set to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled by the record date. Therefore, if you buy shares of LDC on or after August 29, you will not be eligible to receive the dividend when it is paid on August 31.
The company’s next dividend payment will be €2.00 per share, and over the past 12 months the company has paid a total of €2.00 per share. Based on the value of last year’s payouts, LDC stock has a rolling yield of around 2.0% on the current share price of €99.4. If you’re buying this company for its dividend, you should have some idea of the reliability and sustainability of LDC’s dividend. We therefore need to consider whether LDC can afford its dividend and whether the dividend could increase.
Check out our latest analysis for LDC
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. LDC only pays out 21% of its after-tax profit, which is comfortably low and leaves plenty of room for adverse events. A useful secondary check may be to assess whether LDC has generated enough free cash flow to pay its dividend. Fortunately, its dividend payouts only accounted for 44% of the free cash flow it generated, which is a comfortable payout ratio.
It is positive to see that LDC’s dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher margin of safety before the dividend is reduced.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall enough, the company could be forced to cut its dividend. That’s why it’s a relief to see that LDC’s earnings per share have grown 3.9% annually over the past five years. Recent earnings growth has been limited. However, companies that are seeing slow growth can often choose to pay out a higher percentage of their profits to shareholders, which could see the dividend continue to rise.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Over the past 10 years, LDC has increased its dividend by approximately 8.3% per year on average. We are pleased to see dividends rising alongside earnings over several years, which may be a sign that the company intends to share the growth with shareholders.
To sum up
From a dividend perspective, should investors buy or avoid LDC? Earnings per share rose moderately and LDC pays out less than half of its earnings and cash flow as dividends, which is an interesting combination as it suggests the company is investing in growth. We’d rather see earnings grow faster, but the best long-term dividend-paying stocks typically combine significant earnings-per-share growth with a low payout ratio, and LDC is halfway there. Overall, we think this is an attractive combination worthy of further research.
With that in mind, an essential part of thorough stock research is being aware of all the risks that stocks currently face. Our analysis shows 2 warning signs for LDC and you should be aware of this before buying stocks.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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