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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 Inter Parfums, Inc. (NASDAQ:IPAR) is about to go ex-dividend in just 2 days. This means that investors who purchase shares on or after the 27th of June will not receive the dividend, which will be paid on the 15th of July.
Inter Parfums’s next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.10 to shareholders. Looking at the last 12 months of distributions, Inter Parfums has a trailing yield of approximately 1.6% on its current stock price of $67.74. If you buy this business for its dividend, you should have an idea of whether Inter Parfums’s dividend is reliable and sustainable. So we need to investigate whether Inter Parfums can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Inter Parfums paid out 54% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Inter Parfums generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Inter Parfums’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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it’s a relief to see Inter Parfums earnings per share are up 7.3% per annum over the last five years.
While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it’s unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Inter Parfums has lifted its dividend by approximately 24% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Inter Parfums got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Inter Parfums’s dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Inter Parfums today.
Wondering what the future holds for Inter Parfums? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.