International Paper Company (NYSE:IP) Stock Goes Ex-Dividend In Just Four Days

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 International Paper Company (NYSE:IP) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Thus, you can purchase International Paper's shares before the 14th of August in order to receive the dividend, which the company will pay on the 15th of September.

The company's next dividend payment will be US$0.46 per share, and in the last 12 months, the company paid a total of US$1.85 per share. Last year's total dividend payments show that International Paper has a trailing yield of 5.2% on the current share price of $35.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for International Paper

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see International Paper paying out a modest 45% of its earnings. 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. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that International Paper'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?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see International Paper's earnings per share have been shrinking at 3.9% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. International Paper has delivered 4.4% dividend growth per year on average over the past 10 years.

To Sum It Up

From a dividend perspective, should investors buy or avoid International Paper? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with International Paper, you should know about the other risks facing this business. Be aware that International Paper is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.