Readers hoping to buy Koninklijke KPN N.V. (AMS:KPN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Koninklijke KPN investors that purchase the stock on or after the 19th of April will not receive the dividend, which will be paid on the 22nd of April.
The company's next dividend payment will be €0.091 per share, and in the last 12 months, the company paid a total of €0.14 per share. Looking at the last 12 months of distributions, Koninklijke KPN has a trailing yield of approximately 3.9% on its current stock price of €3.468. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Koninklijke KPN paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Koninklijke KPN generated enough free cash flow to afford its dividend. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Koninklijke KPN's earnings have been skyrocketing, up 34% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Koninklijke KPN has seen its dividend decline 17% per annum on average over the past 10 years, which is not great to see. Koninklijke KPN is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Should investors buy Koninklijke KPN for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Koninklijke KPN paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Koninklijke KPN, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Koninklijke KPN is facing. To that end, you should learn about the 4 warning signs we've spotted with Koninklijke KPN (including 1 which is a bit unpleasant).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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.