Be Sure To Check Out Ferguson Enterprises Inc. (NYSE:FERG) Before It Goes Ex-Dividend

Readers hoping to buy Ferguson Enterprises Inc. (NYSE:FERG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase Ferguson Enterprises' shares before the 27th of September in order to receive the dividend, which the company will pay on the 8th of November.

The company's upcoming dividend is US$0.79 a share, following on from the last 12 months, when the company distributed a total of US$3.16 per share to shareholders. Looking at the last 12 months of distributions, Ferguson Enterprises has a trailing yield of approximately 1.6% on its current stock price of US$196.52. If you buy this business for its dividend, you should have an idea of whether Ferguson Enterprises's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Ferguson Enterprises

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 Ferguson Enterprises paying out a modest 34% of its 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. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's positive to see that Ferguson Enterprises'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Ferguson Enterprises has grown its earnings rapidly, up 21% a year for the past five years. Ferguson Enterprises is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Ferguson Enterprises dividends are largely the same as they were 10 years ago.

To Sum It Up

Has Ferguson Enterprises got what it takes to maintain its dividend payments? It's great that Ferguson Enterprises is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Ferguson Enterprises for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Ferguson Enterprises and understanding them should be part of your investment process.

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.