Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Chr. Hansen Holding A/S (CPH:CHR) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 28th of November in order to be eligible for this dividend, which will be paid on the 2nd of December.
The upcoming dividend for Chr. Hansen Holding is ø7.07 per share, increased from last year's total dividends per share of ø1.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Chr. Hansen Holding is paying out an acceptable 50% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Chr. Hansen Holding generated enough free cash flow to afford its dividend. Dividends consumed 72% 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 Chr. Hansen Holding'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?
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Chr. Hansen Holding's earnings per share have risen 14% per annum over the last five years. Chr. Hansen Holding has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. 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. Chr. Hansen Holding has delivered 40% dividend growth per year on average over the past nine years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy Chr. Hansen Holding for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Chr. Hansen Holding's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 50% and 72% respectively. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Wondering what the future holds for Chr. Hansen Holding? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.