It Might Not Be A Great Idea To Buy Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) For Its Next Dividend

By
Simply Wall St
Published
May 01, 2021
SWX:LISN

Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 6th of May, you won't be eligible to receive this dividend, when it is paid on the 10th of May.

Chocoladefabriken Lindt & Sprüngli's next dividend payment will be CHF1,100 per share. Last year, in total, the company distributed CHF1,100 to shareholders. Based on the last year's worth of payments, Chocoladefabriken Lindt & Sprüngli stock has a trailing yield of around 1.2% on the current share price of CHF90200. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Chocoladefabriken Lindt & Sprüngli has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Chocoladefabriken Lindt & Sprüngli

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 83% 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. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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.

historic-dividend
SWX:LISN Historic Dividend May 1st 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Chocoladefabriken Lindt & Sprüngli's earnings per share have been shrinking at 4.1% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Chocoladefabriken Lindt & Sprüngli has lifted its dividend by approximately 9.3% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Chocoladefabriken Lindt & Sprüngli is already paying out 83% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Should investors buy Chocoladefabriken Lindt & Sprüngli for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least Chocoladefabriken Lindt & Sprüngli's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Chocoladefabriken Lindt & Sprüngli is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Curious what other investors think of Chocoladefabriken Lindt & Sprüngli? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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