Should You Buy Carrefour SA (EPA:CA) For Its Upcoming Dividend?

Carrefour SA (EPA:CA) is about to trade ex-dividend in the next 3 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 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. Therefore, if you purchase Carrefour's shares on or after the 28th of May, you won't be eligible to receive the dividend, when it is paid on the 30th of May.

The company's next dividend payment will be €0.87 per share, on the back of last year when the company paid a total of €0.87 to shareholders. Based on the last year's worth of payments, Carrefour stock has a trailing yield of around 5.3% on the current share price of €16.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Carrefour

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. Carrefour paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Carrefour'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Carrefour has grown its earnings rapidly, up 44% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Carrefour could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Carrefour has increased its dividend at approximately 3.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Carrefour is keeping back more of its profits to grow the business.

The Bottom Line

Is Carrefour worth buying for its dividend? Carrefour's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Carrefour looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Carrefour for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 4 warning signs with Carrefour and understanding them should be part of your investment process.

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.