Three Days Left To Buy Woolworths Group Limited (ASX:WOW) Before The Ex-Dividend Date

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Woolworths Group Limited (ASX:WOW) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 4th of March, you won't be eligible to receive this dividend, when it is paid on the 14th of April.

Woolworths Group's upcoming dividend is AU$0.53 a share, following on from the last 12 months, when the company distributed a total of AU$1.01 per share to shareholders. Calculating the last year's worth of payments shows that Woolworths Group has a trailing yield of 2.6% on the current share price of A$39.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Woolworths Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Woolworths Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 90% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Woolworths Group'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 falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Woolworths Group's earnings per share have dropped 9.4% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Woolworths Group's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Has Woolworths Group got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Woolworths Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Woolworths Group, you'll find it worthwhile knowing the risks that this stock faces. For example - Woolworths Group has 3 warning signs we think you should be aware of.

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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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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