Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Coloplast A/S (CPH:COLO B) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 6th of December will not receive this dividend, which will be paid on the 10th of December.
Coloplast's next dividend payment will be ø12.00 per share. Last year, in total, the company distributed ø17.00 to shareholders. Calculating the last year's worth of payments shows that Coloplast has a trailing yield of 2.1% on the current share price of DKK802. If you buy this business for its dividend, you should have an idea of whether Coloplast's dividend is reliable and sustainable. As a result, readers should always check whether Coloplast has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Coloplast paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Coloplast generated enough free cash flow to afford its dividend. Over the last year it paid out 64% 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.
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Coloplast earnings per share are up 10.0% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Coloplast has delivered 28% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Has Coloplast got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Coloplast paid out a bit over half of its earnings and free cash flow last year. Overall, it's hard to get excited about Coloplast from a dividend perspective.
Wondering what the future holds for Coloplast? See what the 17 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 firstname.lastname@example.org. 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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