Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Inter Parfums, Inc. (NASDAQ:IPAR) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 30th of March, you won't be eligible to receive this dividend, when it is paid on the 15th of April.
Inter Parfums's upcoming dividend is US$0.33 a share, following on from the last 12 months, when the company distributed a total of US$1.32 per share to shareholders. Calculating the last year's worth of payments shows that Inter Parfums has a trailing yield of 2.9% on the current share price of $45.58. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Inter Parfums is paying out an acceptable 60% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Inter Parfums'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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Inter Parfums's earnings per share have been growing at 15% a year for the past five years. Inter Parfums is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Inter Parfums has increased its dividend at approximately 26% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Should investors buy Inter Parfums for the upcoming dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Inter Parfums's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 60% and 53% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Inter Parfums's dividend merits.
On that note, you'll want to research what risks Inter Parfums is facing. In terms of investment risks, we've identified 1 warning sign with Inter Parfums and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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