Don't Race Out To Buy Laurent-Perrier S.A. (EPA:LPE) Just Because It's Going Ex-Dividend

By
Simply Wall St
Published
July 25, 2021
ENXTPA:LPE
Source: Shutterstock

Laurent-Perrier S.A. (EPA:LPE) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Laurent-Perrier's shares before the 29th of July in order to be eligible for the dividend, which will be paid on the 2nd of August.

The company's upcoming dividend is €1.00 a share, following on from the last 12 months, when the company distributed a total of €1.00 per share to shareholders. Looking at the last 12 months of distributions, Laurent-Perrier has a trailing yield of approximately 1.0% on its current stock price of €102.5. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Laurent-Perrier

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Laurent-Perrier is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Over the past year it paid out 178% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Laurent-Perrier's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Laurent-Perrier's ability to maintain its dividend.

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

historic-dividend
ENXTPA:LPE Historic Dividend July 25th 2021

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Laurent-Perrier's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Laurent-Perrier has lifted its dividend by approximately 2.8% a year on average.

The Bottom Line

Is Laurent-Perrier worth buying for its dividend? It's disappointing to see earnings per share have fallen slightly, even though Laurent-Perrier is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think Laurent-Perrier is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Laurent-Perrier don't faze you, it's worth being mindful of the risks involved with this business. For example - Laurent-Perrier has 1 warning sign we think 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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