Don't Race Out To Buy International Flavors & Fragrances Inc. (NYSE:IFF) Just Because It's Going Ex-Dividend

International Flavors & Fragrances Inc. (NYSE:IFF) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase International Flavors & Fragrances' shares on or after the 21st of March will not receive the dividend, which will be paid on the 10th of April.

The company's next dividend payment will be US$0.40 per share. Last year, in total, the company distributed US$1.60 to shareholders. Based on the last year's worth of payments, International Flavors & Fragrances stock has a trailing yield of around 1.9% on the current share price of US$82.85. If you buy this business for its dividend, you should have an idea of whether International Flavors & Fragrances's dividend is reliable and sustainable. So we need to investigate whether International Flavors & Fragrances can afford its dividend, and if the dividend could grow.

Check out our latest analysis for International Flavors & Fragrances

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. International Flavors & Fragrances paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. International Flavors & Fragrances was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. International Flavors & Fragrances has delivered 1.6% dividend growth per year on average over the past 10 years.

Get our latest analysis on International Flavors & Fragrances's balance sheet health here.

Final Takeaway

Is International Flavors & Fragrances worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think International Flavors & Fragrances is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering International Flavors & Fragrances as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for International Flavors & Fragrances that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.