Continental Aktiengesellschaft (ETR:CON) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Continental’s shares on or after the 28th of April, you won’t be eligible to receive the dividend, when it is paid on the 30th of April.
The company’s next dividend payment will be €2.50 per share, and in the last 12 months, the company paid a total of €2.50 per share. Based on the last year’s worth of payments, Continental has a trailing yield of 3.8% on the current stock price of €66.02. If you buy this business for its dividend, you should have an idea of whether Continental’s dividend is reliable and sustainable. So we need to investigate whether Continental can afford its dividend, and if the dividend could grow.
Our free stock report includes 1 warning sign investors should be aware of before investing in Continental. Read for free now.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That’s why it’s good to see Continental paying out a modest 43% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It’s positive to see that Continental’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.
See our latest analysis for Continental
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Continental has grown its earnings rapidly, up 56% a year for the past five years. Continental is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Continental’s dividend payments per share have declined at 2.6% per year on average over the past 10 years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Should investors buy Continental for the upcoming dividend? Continental has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
So while Continental looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we’ve identified 1 warning sign with Continental and understanding them 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.