Just Four Days Till Intertek Group plc (LON:ITRK) Will Be Trading Ex-Dividend

It looks like Intertek Group plc (LON:ITRK) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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, Intertek Group investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be UK£0.74 per share, on the back of last year when the company paid a total of UK£1.12 to shareholders. Based on the last year's worth of payments, Intertek Group stock has a trailing yield of around 2.2% on the current share price of UK£50.25. If you buy this business for its dividend, you should have an idea of whether Intertek Group's dividend is reliable and sustainable. So we need to investigate whether Intertek Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Intertek Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Intertek Group paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Intertek Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's positive to see that Intertek Group'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?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Intertek Group's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

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, Intertek Group has lifted its dividend by approximately 10% a year on average.

Final Takeaway

Has Intertek Group got what it takes to maintain its dividend payments? It's unfortunate that earnings per share have not grown, and we'd note that Intertek Group is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Intertek Group is facing. In terms of investment risks, we've identified 1 warning sign with Intertek Group and understanding them should be part of your investment process.

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.