It Might Not Be A Great Idea To Buy DKSH Holding AG (VTX:DKSH) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see DKSH Holding AG (VTX:DKSH) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, DKSH Holding investors that purchase the stock on or after the 20th of March will not receive the dividend, which will be paid on the 22nd of March.

The company's upcoming dividend is CHF2.15 a share, following on from the last 12 months, when the company distributed a total of CHF2.15 per share to shareholders. Last year's total dividend payments show that DKSH Holding has a trailing yield of 2.9% on the current share price of CHF73.05. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for DKSH Holding

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. DKSH Holding paid out 69% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether DKSH Holding generated enough free cash flow to afford its dividend. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.

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?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that DKSH Holding's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, DKSH Holding has increased its dividend at approximately 13% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid DKSH Holding? DKSH Holding has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

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

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.