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 MERCK Kommanditgesellschaft auf Aktien (ETR:MRK) is about to go ex-dividend in just three 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, MERCK Kommanditgesellschaft auf Aktien investors that purchase the stock on or after the 25th of April will not receive the dividend, which will be paid on the 27th of April.
The company's next dividend payment will be €1.85 per share, on the back of last year when the company paid a total of €1.85 to shareholders. Based on the last year's worth of payments, MERCK Kommanditgesellschaft auf Aktien has a trailing yield of 1.0% on the current stock price of €181.1. If you buy this business for its dividend, you should have an idea of whether MERCK Kommanditgesellschaft auf Aktien's dividend is reliable and sustainable. So we need to investigate whether MERCK Kommanditgesellschaft auf Aktien can afford its dividend, and if the dividend could grow.
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. MERCK Kommanditgesellschaft auf Aktien paid out a comfortable 26% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's positive to see that MERCK Kommanditgesellschaft auf Aktien's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see MERCK Kommanditgesellschaft auf Aktien's earnings per share have risen 13% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, MERCK Kommanditgesellschaft auf Aktien has increased its dividend at approximately 9.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is MERCK Kommanditgesellschaft auf Aktien an attractive dividend stock, or better left on the shelf? MERCK Kommanditgesellschaft auf Aktien has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about MERCK Kommanditgesellschaft auf Aktien, and we would prioritise taking a closer look at it.
Wondering what the future holds for MERCK Kommanditgesellschaft auf Aktien? See what the 17 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.