Don't Buy Colruyt Group N.V. (EBR:COLR) For Its Next Dividend Without Doing These Checks

Colruyt Group N.V. (EBR:COLR) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Colruyt Group investors that purchase the stock on or after the 20th of December will not receive the dividend, which will be paid on the 22nd of December.

The company's upcoming dividend is €0.70 a share, following on from the last 12 months, when the company distributed a total of €0.80 per share to shareholders. Looking at the last 12 months of distributions, Colruyt Group has a trailing yield of approximately 2.0% on its current stock price of €39.71. If you buy this business for its dividend, you should have an idea of whether Colruyt Group's dividend is reliable and sustainable. As a result, readers should always check whether Colruyt Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Colruyt Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Colruyt Group is paying out an acceptable 57% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Colruyt Group generated enough free cash flow to afford its dividend. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Colruyt 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?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Colruyt Group's earnings per share have dropped 11% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Colruyt Group has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Colruyt Group worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Colruyt Group as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for Colruyt Group you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.