Coles Group Limited (ASX:COL) Pays A AU$0.30 Dividend In Just Three Days

Coles Group Limited (ASX:COL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Coles Group's shares on or after the 1st of September, you won't be eligible to receive the dividend, when it is paid on the 27th of September.

The company's next dividend payment will be AU$0.30 per share, on the back of last year when the company paid a total of AU$0.66 to shareholders. Based on the last year's worth of payments, Coles Group stock has a trailing yield of around 4.1% on the current share price of A$15.91. 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 Coles Group

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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. 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. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Coles Group's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 84% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Coles Group could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Coles Group has delivered 7.2% dividend growth per year on average over the past four years.

Final Takeaway

Is Coles Group an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown, and although Coles Group paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. In summary, while it has some positive characteristics, we're not inclined to race out and buy Coles Group today.

If you want to look further into Coles Group, it's worth knowing the risks this business faces. Case in point: We've spotted 1 warning sign for Coles Group you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.