Barry Callebaut AG (VTX:BARN) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

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 Barry Callebaut AG (VTX:BARN) is about to go ex-dividend in just four days. If you purchase the stock on or after the 5th of January, you won't be eligible to receive this dividend, when it is paid on the 7th of January.

Barry Callebaut's upcoming dividend is CHF22.00 a share, following on from the last 12 months, when the company distributed a total of CHF22.00 per share to shareholders. Last year's total dividend payments show that Barry Callebaut has a trailing yield of 1.0% on the current share price of CHF2104. If you buy this business for its dividend, you should have an idea of whether Barry Callebaut's dividend is reliable and sustainable. As a result, readers should always check whether Barry Callebaut has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Barry Callebaut

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Barry Callebaut paid out a comfortable 38% of its profit last year. 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. Fortunately, it paid out only 46% of its free cash flow in the past year.

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 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Barry Callebaut earnings per share are up 5.9% per annum 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Barry Callebaut has lifted its dividend by approximately 4.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Barry Callebaut for the upcoming dividend? Earnings per share growth has been growing somewhat, and Barry Callebaut is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Barry Callebaut is halfway there. Barry Callebaut looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Barry Callebaut is facing. Our analysis shows 1 warning sign for Barry Callebaut and you should be aware of it before buying any shares.

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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