Read This Before Considering Johnson & Johnson (NYSE:JNJ) For Its Upcoming US$1.24 Dividend

Johnson & Johnson (NYSE:JNJ) is about to trade ex-dividend in the next four days. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Johnson & Johnson's shares before the 18th of February in order to receive the dividend, which the company will pay on the 4th of March.

The company's next dividend payment will be US$1.24 per share. Last year, in total, the company distributed US$4.96 to shareholders. Calculating the last year's worth of payments shows that Johnson & Johnson has a trailing yield of 3.2% on the current share price of US$155.26. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Johnson & Johnson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Johnson & Johnson's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 85% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Johnson & Johnson could be signalling that its future growth prospects are thin.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Johnson & Johnson has delivered 5.9% dividend growth per year on average over the past 10 years.

The Bottom Line

Should investors buy Johnson & Johnson for the upcoming dividend? Johnson & Johnson has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. Johnson & Johnson ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

Ever wonder what the future holds for Johnson & Johnson? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.