Pernod Ricard SA (EPA:RI) stock is about to trade ex-dividend in 2 days time. Investors can purchase shares before the 25th of November in order to be eligible for this dividend, which will be paid on the 27th of November.

Pernod Ricard's next dividend payment will be €1.94 per share. Last year, in total, the company distributed €2.53 to shareholders. Last year's total dividend payments show that Pernod Ricard has a trailing yield of 1.9% on the current share price of €168. If you buy this business for its dividend, you should have an idea of whether Pernod Ricard's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Pernod Ricard

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Pernod Ricard paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Pernod Ricard'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Pernod Ricard earnings per share are up 7.4% per annum over the last five years. Decent historical earnings per share growth suggests Pernod Ricard has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. 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. Since the start of our data, ten years ago, Pernod Ricard has lifted its dividend by approximately 10% 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.

Final Takeaway

Is Pernod Ricard worth buying for its dividend? While earnings per share growth has been modest, Pernod Ricard's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. All things considered, we are not particularly enthused about Pernod Ricard from a dividend perspective.

Ever wonder what the future holds for Pernod Ricard? See what the 16 analysts we track 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.