Income Investors Should Know That McCormick & Company, Incorporated (NYSE:MKC) Goes Ex-Dividend Soon

It looks like McCormick & Company, Incorporated (NYSE:MKC) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 McCormick's shares before the 7th of April in order to receive the dividend, which the company will pay on the 21st of April.

The company's next dividend payment will be US$0.45 per share, on the back of last year when the company paid a total of US$1.80 to shareholders. Looking at the last 12 months of distributions, McCormick has a trailing yield of approximately 2.2% on its current stock price of US$82.25. 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.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. McCormick paid out more than half (58%) 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. Over the last year it paid out 71% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that McCormick'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.

View our latest analysis for McCormick

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 McCormick's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. McCormick has delivered an average of 9.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Has McCormick got what it takes to maintain its dividend payments? Earnings per share have barely grown, and although McCormick paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that being said, if dividends aren't your biggest concern with McCormick, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for McCormick you should be aware of.

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.