Income Investors Should Know That Veolia Environnement SA (EPA:VIE) Goes Ex-Dividend Soon

It looks like Veolia Environnement SA (EPA:VIE) is about to go ex-dividend in the next 2 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Veolia Environnement'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 upcoming dividend is €1.40 a share, following on from the last 12 months, when the company distributed a total of €1.40 per share to shareholders. Calculating the last year's worth of payments shows that Veolia Environnement has a trailing yield of 4.4% on the current share price of €31.66. If you buy this business for its dividend, you should have an idea of whether Veolia Environnement's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Our free stock report includes 2 warning signs investors should be aware of before investing in Veolia Environnement. Read for free now.

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 84% 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. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Veolia Environnement'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.

Check out our latest analysis for Veolia Environnement

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Veolia Environnement earnings per share are up 4.5% per annum over the last five years. A payout ratio of 84% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Veolia Environnement has lifted its dividend by approximately 7.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Veolia Environnement worth buying for its dividend? While earnings per share growth has been modest, Veolia Environnement's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, Veolia Environnement looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So while Veolia Environnement looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Veolia Environnement that we strongly recommend you have a look at before investing in the company.

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.