Akzo Nobel N.V. (AMS:AKZA) Passed Our Checks, And It's About To Pay A €1.54 Dividend

Akzo Nobel N.V. (AMS:AKZA) stock is about to trade ex-dividend in four 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Akzo Nobel's shares before the 29th of April to receive the dividend, which will be paid on the 7th of May.

The company's next dividend payment will be €1.54 per share, on the back of last year when the company paid a total of €1.98 to shareholders. Last year's total dividend payments show that Akzo Nobel has a trailing yield of 3.2% on the current share price of €62.28. 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 Akzo Nobel can afford its dividend, and if the dividend could grow.

See our latest analysis for Akzo Nobel

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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Akzo Nobel generated enough free cash flow to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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 Akzo Nobel earnings per share are up 8.2% 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. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Akzo Nobel has increased its dividend at approximately 2.0% a year on average.

To Sum It Up

Is Akzo Nobel worth buying for its dividend? While earnings per share growth has been modest, Akzo Nobel's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Akzo Nobel's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Akzo Nobel and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.