Sanofi (EPA:SAN) Will Pay A €3.92 Dividend In Four Days

It looks like Sanofi (EPA:SAN) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days 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. 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. This means that investors who purchase Sanofi's shares on or after the 12th of May will not receive the dividend, which will be paid on the 14th of May.

The company's next dividend payment will be €3.92 per share, and in the last 12 months, the company paid a total of €3.92 per share. Calculating the last year's worth of payments shows that Sanofi has a trailing yield of 4.1% on the current share price of €95.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Sanofi'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.

View our latest analysis for Sanofi

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Sanofi's earnings per share have been growing at 17% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sanofi has delivered 3.2% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Sanofi is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Sanofi? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Sanofi's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 89% and 80% respectively. All things considered, we are not particularly enthused about Sanofi from a dividend perspective.

Ever wonder what the future holds for Sanofi? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.