Just Four Days Till Brown-Forman Corporation (NYSE:BF.B) Will Be Trading Ex-Dividend

Brown-Forman Corporation (NYSE:BF.B) is about to trade ex-dividend in the next 4 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. In other words, investors can purchase Brown-Forman's shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be US$0.21 per share, and in the last 12 months, the company paid a total of US$0.82 per share. Last year's total dividend payments show that Brown-Forman has a trailing yield of 1.3% on the current share price of $61.81. If you buy this business for its dividend, you should have an idea of whether Brown-Forman'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 Brown-Forman

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Brown-Forman paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Brown-Forman generated enough free cash flow to afford its dividend. It paid out 78% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Brown-Forman's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A payout ratio of 51% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Brown-Forman has delivered an average of 8.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Should investors buy Brown-Forman for the upcoming dividend? Brown-Forman has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. All things considered, we are not particularly enthused about Brown-Forman from a dividend perspective.

If you're not too concerned about Brown-Forman's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example - Brown-Forman has 1 warning sign we think you should be aware of.

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.