Why You Might Be Interested In Sealed Air Corporation (NYSE:SEE) For Its Upcoming Dividend

Sealed Air Corporation (NYSE:SEE) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 5th of March in order to be eligible for this dividend, which will be paid on the 20th of March.

Sealed Air's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Calculating the last year's worth of payments shows that Sealed Air has a trailing yield of 2.1% on the current share price of $30.31. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Sealed Air

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. Fortunately Sealed Air's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Sealed Air generated enough free cash flow to afford its dividend. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sealed Air'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?

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. With that in mind, we're encouraged by the steady growth at Sealed Air, with earnings per share up 9.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Sealed Air has increased its dividend at approximately 2.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Sealed Air for the upcoming dividend? Earnings per share have been growing moderately, and Sealed Air is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Sealed Air is being conservative with its dividend payouts and could still perform reasonably over the long run. Sealed Air looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Sealed Air? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.

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