Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see McCormick & Company, Incorporated (NYSE: MKC) is set to trade ex-dividend within the next three days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you will not appear on the books of the company on the date of registration. This means that you will have to buy McCormick shares by October 8 to receive the dividend, which will be paid on October 26.
The company’s next dividend payment will be US $ 0.34 per share, compared to last year when the company paid a total of US $ 1.36 to shareholders. Based on last year’s payouts, the McCormick stock has a rolling return of around 1.7% on the current stock price of $ 80.71. If you are buying this company for its dividend, you should know if McCormick’s dividend is reliable and sustainable. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
Check out our latest analysis for McCormick
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. McCormick paid a comfortable 47% of his profit last year. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Over the past year, it has paid out 69% of its free cash flow as dividends, within the range typical for most companies.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. For this reason, we are pleased to see that McCormick’s earnings per share have grown 13% per year over the past five years. McCormick pays just over half of its profits, suggesting the company is balancing reinvesting in growth and paying dividends. This is a reasonable combination that could portend further dividend increases in the future.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, McCormick has increased its dividend by an average of 9.3% per year. We are happy to see dividends increasing alongside earnings over multiple years, which may be a sign that the company intends to share the growth with its shareholders.
Does McCormick have what it takes to maintain his dividend payments? From a dividend perspective, we’re encouraged to see that as earnings per share have gone up, the company is paying less than half of its earnings and just over half of its free cash flow. It is a promising combination that should mark this company worthy of further attention.
So while McCormick looks good from a dividend standpoint, it’s still worth being aware of the risks involved in this title. To help you, we have discovered 1 warning sign for McCormick which you should know before investing in their stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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