Here's What We Like About Jerónimo Martins SGPS' (ELI:JMT) Upcoming Dividend

Jerónimo Martins, SGPS, S.A. (ELI:JMT) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Jerónimo Martins SGPS' shares on or after the 15th of May will not receive the dividend, which will be paid on the 17th of May.

The company's next dividend payment will be €0.55 per share, on the back of last year when the company paid a total of €0.55 to shareholders. Based on the last year's worth of payments, Jerónimo Martins SGPS stock has a trailing yield of around 2.4% on the current share price of €23.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Jerónimo Martins SGPS

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Jerónimo Martins SGPS paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. 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. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Jerónimo Martins SGPS's earnings per share have risen 11% per annum over the last five years. Jerónimo Martins SGPS has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases 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, Jerónimo Martins SGPS has increased its dividend at approximately 6.4% 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.

The Bottom Line

Should investors buy Jerónimo Martins SGPS for the upcoming dividend? We like Jerónimo Martins SGPS's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

Ever wonder what the future holds for Jerónimo Martins SGPS? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.