It looks like Rentokil Initial plc (LON:RTO) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 8th of April will not receive the dividend, which will be paid on the 19th of May.
Rentokil Initial's next dividend payment will be UK£0.054 per share, and in the last 12 months, the company paid a total of UK£0.054 per share. Calculating the last year's worth of payments shows that Rentokil Initial has a trailing yield of 1.1% on the current share price of £5. If you buy this business for its dividend, you should have an idea of whether Rentokil Initial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Rentokil Initial is paying out an acceptable 54% of its profit, a common payout level among most companies.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Rentokil Initial earnings per share are up 8.0% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Rentokil Initial has delivered 12% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Rentokil Initial worth buying for its dividend? Rentokil Initial has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. Rentokil Initial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 2 warning signs with Rentokil Initial (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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