Is It Smart To Buy Krones AG (ETR:KRN) Before It Goes Ex-Dividend?

It looks like Krones AG (ETR:KRN) is about to go ex-dividend in the next 3 days. The ex-dividend date generally occurs two days 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. Thus, you can purchase Krones' shares before the 28th of May in order to receive the dividend, which the company will pay on the 2nd of June.

The company's next dividend payment will be €2.60 per share, on the back of last year when the company paid a total of €2.60 to shareholders. Looking at the last 12 months of distributions, Krones has a trailing yield of approximately 1.9% on its current stock price of €139.20. If you buy this business for its dividend, you should have an idea of whether Krones's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 1 warning sign about Krones. View them for free.

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. Fortunately Krones's payout ratio is modest, at just 29% of profit. 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. Fortunately, it paid out only 27% 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.

See our latest analysis for Krones

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 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 comforting to see Krones's earnings have been skyrocketing, up 98% per annum for the past five years. Krones is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Krones has delivered 7.6% dividend growth per year on average over the past 10 years. 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.

Final Takeaway

Has Krones got what it takes to maintain its dividend payments? It's great that Krones is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Krones looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Krones looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Krones you should be aware of.

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.

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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.