It looks like Church & Dwight Co., Inc. (NYSE:CHD) is about to go ex-dividend in the next three days. If you purchase the stock on or after the 13th of May, you won't be eligible to receive this dividend, when it is paid on the 1st of June.
Church & Dwight's upcoming dividend is US$0.25 a share, following on from the last 12 months, when the company distributed a total of US$1.01 per share to shareholders. Calculating the last year's worth of payments shows that Church & Dwight has a trailing yield of 1.2% on the current share price of $87.43. If you buy this business for its dividend, you should have an idea of whether Church & Dwight's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see Church & Dwight paying out a modest 31% of its 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. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's positive to see that Church & Dwight'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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Church & Dwight's earnings per share have been growing at 15% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Church & Dwight has delivered 20% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has Church & Dwight got what it takes to maintain its dividend payments? Church & Dwight has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Church & Dwight, and we would prioritise taking a closer look at it.
So while Church & Dwight looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Church & Dwight has 1 warning sign we think you should be aware of.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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