Don't Race Out To Buy Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) Just Because It's Going Ex-Dividend

Procter & Gamble Hygiene and Health Care Limited (NSE:PGHH) stock is about to trade ex-dividend in three days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Procter & Gamble Hygiene and Health Care's shares before the 19th of November in order to receive the dividend, which the company will pay on the 20th of December.

The company's upcoming dividend is ₹95.00 a share, following on from the last 12 months, when the company distributed a total of ₹195 per share to shareholders. Last year's total dividend payments show that Procter & Gamble Hygiene and Health Care has a trailing yield of 1.2% on the current share price of ₹15704.00. If you buy this business for its dividend, you should have an idea of whether Procter & Gamble Hygiene and Health Care's dividend is reliable and sustainable. As a result, readers should always check whether Procter & Gamble Hygiene and Health Care has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Procter & Gamble Hygiene and Health Care

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. Last year Procter & Gamble Hygiene and Health Care paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Over the last year, it paid out dividends equivalent to 202% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cash is slightly more important than profit from a dividend perspective, but given Procter & Gamble Hygiene and Health Care's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Procter & Gamble Hygiene and Health Care's earnings per share have risen 10% per annum over the last five years. It's not encouraging to see Procter & Gamble Hygiene and Health Care paying out basically all of its earnings and cashflow to shareholders. We're glad that earnings are growing rapidly, but we're wary of the company stretching itself financially.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Procter & Gamble Hygiene and Health Care has delivered an average of 22% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Procter & Gamble Hygiene and Health Care for the upcoming dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Procter & Gamble Hygiene and Health Care don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Procter & Gamble Hygiene and Health Care you should know about.

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.