It looks like The Estée Lauder Companies Inc. (NYSE:EL) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Estée Lauder Companies' shares on or after the 29th of November will not receive the dividend, which will be paid on the 15th of December.
The company's next dividend payment will be US$0.66 per share, on the back of last year when the company paid a total of US$2.64 to shareholders. Last year's total dividend payments show that Estée Lauder Companies has a trailing yield of 1.2% on the current share price of $222.71. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Estée Lauder Companies can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Estée Lauder Companies paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Estée Lauder Companies generated enough free cash flow to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Estée Lauder Companies'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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Estée Lauder Companies's earnings per share have been growing at 12% a year for the past five years. Estée Lauder Companies has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Estée Lauder Companies has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Estée Lauder Companies? Earnings per share have grown at a nice rate in recent times and over the last year, Estée Lauder Companies paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
So while Estée Lauder Companies looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Estée Lauder Companies that you should be aware of before investing in their shares.
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.
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