Yahoo Finance Sealed Air (NYSE:SEE) Could Be A Buy For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sealed Air Corporation (NYSE:SEE) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Sealed Air's shares before the 9th of March in order to be eligible for the dividend, which will be paid on the 24th of March.
The company's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.80 to shareholders. Based on the last year's worth of payments, Sealed Air has a trailing yield of 1.6% on the current stock price of $49.12. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Sealed Air
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. Sealed Air has a low and conservative payout ratio of just 24% of its income after tax. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Sealed Air'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. 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 Sealed Air has grown its earnings rapidly, up 62% a year for the past five years. Sealed Air is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Sealed Air has lifted its dividend by approximately 4.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Sealed Air is keeping back more of its profits to grow the business.
To Sum It Up
Has Sealed Air got what it takes to maintain its dividend payments? Sealed Air has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Sealed Air looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Sealed Air for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Sealed Air and you should be aware of this before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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