Bath & Body Works, Inc. (NYSE:BBWI) Pays A US$0.20 Dividend In Just Four Days

Readers hoping to buy Bath & Body Works, Inc. (NYSE:BBWI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Bath & Body Works' shares before the 1st of June in order to be eligible for the dividend, which will be paid on the 16th of June.

The company's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Looking at the last 12 months of distributions, Bath & Body Works has a trailing yield of approximately 2.2% on its current stock price of $36.89. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Bath & Body Works

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Bath & Body Works's payout ratio is modest, at just 25% of profit. A useful secondary check can be to evaluate whether Bath & Body Works generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.

It's positive to see that Bath & Body Works'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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Bath & Body Works's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bath & Body Works has seen its dividend decline 17% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Is Bath & Body Works worth buying for its dividend? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. Overall, it's hard to get excited about Bath & Body Works from a dividend perspective.

So while Bath & Body Works looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 4 warning signs with Bath & Body Works (at least 1 which can't be ignored), and understanding these should be part of your investment process.

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.