Readers hoping to buy Edgewell Personal Care Company (NYSE:EPC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. This means that investors who purchase Edgewell Personal Care's shares on or after the 3rd of June will not receive the dividend, which will be paid on the 7th of July.
The company's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Last year's total dividend payments show that Edgewell Personal Care has a trailing yield of 1.3% on the current share price of $45.38. 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 Edgewell Personal Care can afford its dividend, and if the dividend could grow.
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. Edgewell Personal Care paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Edgewell Personal Care generated enough free cash flow to afford its dividend. It paid out 5.9% of its free cash flow as dividends last year, which is conservatively low.
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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Edgewell Personal Care's earnings per share have dropped 23% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Edgewell Personal Care has seen its dividend decline 10% per annum on average over the past nine years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Has Edgewell Personal Care got what it takes to maintain its dividend payments? Edgewell Personal Care has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about Edgewell Personal Care from a dividend perspective.
While it's tempting to invest in Edgewell Personal Care for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 4 warning signs for Edgewell Personal Care (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. 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.
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