Cencora (NYSE:COR) Could Be A Buy For Its Upcoming Dividend

Cencora, Inc. (NYSE:COR) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Cencora's shares before the 9th of August in order to be eligible for the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be US$0.51 per share, on the back of last year when the company paid a total of US$2.04 to shareholders. Last year's total dividend payments show that Cencora has a trailing yield of 0.8% on the current share price of US$247.57. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Cencora can afford its dividend, and if the dividend could grow.

See our latest analysis for Cencora

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. Cencora paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 11% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Cencora, with earnings per share up 4.4% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cencora has delivered 9.3% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Cencora worth buying for its dividend? Earnings per share growth has been growing somewhat, and Cencora is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Cencora is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Cencora, and we would prioritise taking a closer look at it.

So while Cencora looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Cencora has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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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