Should You Buy Publicis Groupe S.A. (EPA:PUB) For Its Upcoming Dividend?

It looks like Publicis Groupe S.A. (EPA:PUB) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Publicis Groupe investors that purchase the stock on or after the 1st of July will not receive the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be €3.60 per share, on the back of last year when the company paid a total of €3.60 to shareholders. Based on the last year's worth of payments, Publicis Groupe has a trailing yield of 3.8% on the current stock price of €93.58. 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 investigate whether Publicis Groupe can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Publicis Groupe is paying out an acceptable 54% of its profit, a common payout level among 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 distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Publicis Groupe'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.

See our latest analysis for Publicis Groupe

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Publicis Groupe's earnings per share have risen 13% per annum over the last five years. Publicis Groupe has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases 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 past 10 years, Publicis Groupe has increased its dividend at approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Should investors buy Publicis Groupe for the upcoming dividend? Publicis Groupe'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. There's a lot to like about Publicis Groupe, and we would prioritise taking a closer look at it.

While it's tempting to invest in Publicis Groupe for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Publicis Groupe and you should be aware of this before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.