Be Sure To Check Out Bunzl plc (LON:BNZL) Before It Goes Ex-Dividend

Readers hoping to buy Bunzl plc (LON:BNZL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Bunzl's shares before the 16th of November in order to be eligible for the dividend, which will be paid on the 3rd of January.

The company's next dividend payment will be UK£0.18 per share. Last year, in total, the company distributed UK£0.64 to shareholders. Calculating the last year's worth of payments shows that Bunzl has a trailing yield of 2.2% on the current share price of £29.21. 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! So we need to investigate whether Bunzl can afford its dividend, and if the dividend could grow.

View our latest analysis for Bunzl

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Bunzl's payout ratio is modest, at just 43% of profit. 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. Luckily it paid out just 20% of its free cash flow last year.

It's positive to see that Bunzl'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.

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. This is why it's a relief to see Bunzl earnings per share are up 9.1% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bunzl has delivered an average of 8.5% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.

The Bottom Line

Is Bunzl worth buying for its dividend? Earnings per share have been growing moderately, and Bunzl is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Bunzl is being conservative with its dividend payouts and could still perform reasonably over the long run. Bunzl looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Bunzl looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Bunzl you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.