Should Income Investors Look At Graphic Packaging Holding Company (NYSE:GPK) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Graphic Packaging Holding Company (NYSE:GPK) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 12th of March to receive the dividend, which will be paid on the 5th of April.

Graphic Packaging Holding's upcoming dividend is US$0.075 a share, following on from the last 12 months, when the company distributed a total of US$0.30 per share to shareholders. Calculating the last year's worth of payments shows that Graphic Packaging Holding has a trailing yield of 1.8% on the current share price of $16.7. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Graphic Packaging Holding can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Graphic Packaging Holding

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Graphic Packaging Holding's payout ratio is modest, at just 50% of profit. A useful secondary check can be to evaluate whether Graphic Packaging Holding generated enough free cash flow to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Graphic Packaging Holding'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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Graphic Packaging Holding's earnings are down 3.0% 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. Graphic Packaging Holding has delivered 7.0% dividend growth per year on average over the past six years.

The Bottom Line

Has Graphic Packaging Holding got what it takes to maintain its dividend payments? Earnings per share have fallen significantly, although at least Graphic Packaging Holding paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. 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 Graphic Packaging Holding, you should know about the other risks facing this business. To help with this, we've discovered 3 warning signs for Graphic Packaging Holding that you should be aware of before investing in their shares.

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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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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