It looks like Givaudan SA (VTX:GIVN) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 27th of March, you won't be eligible to receive this dividend, when it is paid on the 31st of March.
Givaudan's next dividend payment will be CHF62.00 per share, and in the last 12 months, the company paid a total of CHF62.00 per share. Based on the last year's worth of payments, Givaudan has a trailing yield of 2.1% on the current stock price of CHF2916. If you buy this business for its dividend, you should have an idea of whether Givaudan's dividend is reliable and sustainable. 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. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Givaudan'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Givaudan earnings per share are up 4.5% per annum over the last five years. A payout ratio of 81% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Givaudan has increased its dividend at approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is Givaudan worth buying for its dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. In summary, it's hard to get excited about Givaudan from a dividend perspective.
So if you want to do more digging on Givaudan, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Givaudan and you should be aware of this before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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