Dividend Investors: Don't Be Too Quick To Buy EMS-CHEMIE HOLDING AG (VTX:EMSN) For Its Upcoming Dividend

Readers hoping to buy EMS-CHEMIE HOLDING AG (VTX:EMSN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, EMS-CHEMIE HOLDING investors that purchase the stock on or after the 13th of August will not receive the dividend, which will be paid on the 15th of August.

The company's next dividend payment will be CHF019.25 per share, on the back of last year when the company paid a total of CHF16.00 to shareholders. Last year's total dividend payments show that EMS-CHEMIE HOLDING has a trailing yield of 2.2% on the current share price of CHF0712.00. 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! As a result, readers should always check whether EMS-CHEMIE HOLDING has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for EMS-CHEMIE HOLDING

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. EMS-CHEMIE HOLDING is paying out an acceptable 65% of its profit, a common payout level among most companies. 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 70% of its free cash flow as dividends, within the usual 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 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. That's why it's not ideal to see EMS-CHEMIE HOLDING's earnings per share have been shrinking at 2.5% 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. In the past 10 years, EMS-CHEMIE HOLDING has increased its dividend at approximately 3.8% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

From a dividend perspective, should investors buy or avoid EMS-CHEMIE HOLDING? While earnings per share are shrinking, it's encouraging to see that at least EMS-CHEMIE HOLDING's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think EMS-CHEMIE HOLDING is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Curious what other investors think of EMS-CHEMIE HOLDING? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

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