We Wouldn't Be Too Quick To Buy McCormick & Company, Incorporated (NYSE:MKC) Before It Goes Ex-Dividend

It looks like McCormick & Company, Incorporated (NYSE:MKC) is about to go ex-dividend in the next three 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 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, McCormick investors that purchase the stock on or after the 7th of October will not receive the dividend, which will be paid on the 21st of October.

The company's next dividend payment will be US$0.42 per share, on the back of last year when the company paid a total of US$1.68 to shareholders. Calculating the last year's worth of payments shows that McCormick has a trailing yield of 2.0% on the current share price of US$82.04. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether McCormick has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for McCormick

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. McCormick is paying out an acceptable 56% of its profit, a common payout level among 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. It paid out more than half (57%) of its free cash flow in the past year, which is within an average 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.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that McCormick's earnings are down 3.6% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. McCormick has delivered 8.5% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is McCormick worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least McCormick's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of McCormick.

Although, if you're still interested in McCormick and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for McCormick that we recommend you consider before investing in the business.

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.