Heineken Holding N.V. (AMS:HEIO) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 27th of April will not receive this dividend, which will be paid on the 7th of May.
Heineken Holding's next dividend payment will be €1.04 per share, on the back of last year when the company paid a total of €1.68 to shareholders. Based on the last year's worth of payments, Heineken Holding has a trailing yield of 2.4% on the current stock price of €69.95. If you buy this business for its dividend, you should have an idea of whether Heineken Holding's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see Heineken Holding paying out a modest 45% 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. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Heineken Holding'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.
Have Earnings And Dividends Been Growing?
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. With that in mind, we're encouraged by the steady growth at Heineken Holding, with earnings per share up 7.4% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Heineken Holding has delivered 11% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Heineken Holding an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Heineken Holding is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
While it's tempting to invest in Heineken Holding for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Heineken Holding that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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