Three Days Left Until Danone S.A. (EPA:BN) Trades Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Danone S.A. (EPA:BN) is about to trade ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 14th of July will not receive this dividend, which will be paid on the 16th of July.

Danone's next dividend payment will be €2.10 per share. Last year, in total, the company distributed €2.10 to shareholders. Based on the last year's worth of payments, Danone has a trailing yield of 3.5% on the current stock price of €59.76. If you buy this business for its dividend, you should have an idea of whether Danone'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.

See our latest analysis for Danone

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Danone paid out 71% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Danone generated enough free cash flow to afford its dividend. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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?

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Danone, with earnings per share up 9.4% on average over the last five years. Decent historical earnings per share growth suggests Danone has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Danone has lifted its dividend by approximately 5.8% 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.

Final Takeaway

Should investors buy Danone for the upcoming dividend? Earnings per share have been growing modestly and Danone paid out a bit over half of its earnings and free cash flow last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you want to look further into Danone, it's worth knowing the risks this business faces. Case in point: We've spotted 2 warning signs for Danone you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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