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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TOTAL S.A. (EPA:FP) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 30th of March will not receive the dividend, which will be paid on the 1st of April.
TOTAL's next dividend payment will be €0.68 per share, and in the last 12 months, the company paid a total of €2.91 per share. Based on the last year's worth of payments, TOTAL has a trailing yield of 8.2% on the current stock price of €32.85. If you buy this business for its dividend, you should have an idea of whether TOTAL's dividend is reliable and sustainable. As a result, readers should always check whether TOTAL has been able to grow its dividends, or if the dividend might be cut.
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. TOTAL is paying out an acceptable 69% of its profit, a common payout level among most companies. 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. Dividends consumed 54% 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 TOTAL'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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, TOTAL's earnings per share have been growing at 18% a year for the past five years. TOTAL is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TOTAL's dividend payments are effectively flat on where they were ten years ago.
To Sum It Up
Has TOTAL got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that TOTAL is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
In light of that, while TOTAL has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for TOTAL you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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