Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Estée Lauder Companies Inc. (NYSE:EL) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 27th of February in order to be eligible for this dividend, which will be paid on the 16th of March.
Estée Lauder Companies's next dividend payment will be US$0.48 per share, on the back of last year when the company paid a total of US$1.92 to shareholders. Calculating the last year's worth of payments shows that Estée Lauder Companies has a trailing yield of 0.9% on the current share price of $209.27. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Estée Lauder Companies can afford its dividend, and if the dividend could grow.
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. Estée Lauder Companies paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Estée Lauder Companies generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
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?
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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Estée Lauder Companies's earnings per share have risen 11% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Estée Lauder Companies has delivered 21% dividend growth per year on average over the past ten years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy Estée Lauder Companies for the upcoming dividend? Estée Lauder Companies has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Estée Lauder Companies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Estée Lauder Companies? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
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