Just Three Days Till Koninklijke Ahold Delhaize N.V. (AMS:AD) Will Be Trading Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Koninklijke Ahold Delhaize N.V. (AMS:AD) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 16th of April in order to receive the dividend, which the company will pay on the 29th of April.

Koninklijke Ahold Delhaize's next dividend payment will be €0.40 per share. Last year, in total, the company distributed €0.90 to shareholders. Calculating the last year's worth of payments shows that Koninklijke Ahold Delhaize has a trailing yield of 3.8% on the current share price of €23.825. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Koninklijke Ahold Delhaize can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Koninklijke Ahold Delhaize

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Koninklijke Ahold Delhaize is paying out an acceptable 69% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Koninklijke Ahold Delhaize'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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Koninklijke Ahold Delhaize, with earnings per share up 3.5% on average over the last five years. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Koninklijke Ahold Delhaize has lifted its dividend by approximately 10% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Koninklijke Ahold Delhaize for the upcoming dividend? Earnings per share growth has been modest and Koninklijke Ahold Delhaize paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in Koninklijke Ahold Delhaize for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Koninklijke Ahold Delhaize you should know about.

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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