Just Three Days Till Zimmer Biomet Holdings, Inc. (NYSE:ZBH) Will Be Trading Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Zimmer Biomet Holdings, Inc. (NYSE:ZBH) is about to go ex-dividend in just three days. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Zimmer Biomet Holdings' shares on or after the 31st of March, you won't be eligible to receive the dividend, when it is paid on the 30th of April.

The company's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.96 to shareholders. Based on the last year's worth of payments, Zimmer Biomet Holdings stock has a trailing yield of around 0.9% on the current share price of US$110.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Zimmer Biomet Holdings can afford its dividend, and if the dividend could grow.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Zimmer Biomet Holdings has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 22% of its free cash flow last year.

It's positive to see that Zimmer Biomet Holdings'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 Zimmer Biomet Holdings

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Zimmer Biomet Holdings's earnings are down 3.8% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Zimmer Biomet Holdings has delivered an average of 0.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Should investors buy Zimmer Biomet Holdings for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Zimmer Biomet Holdings from a dividend perspective.

On that note, you'll want to research what risks Zimmer Biomet Holdings is facing. For example - Zimmer Biomet Holdings has 2 warning signs we think you should be aware of.

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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.