Yahoo Finance We Wouldn't Be Too Quick To Buy Clariant AG (VTX:CLN) Before It Goes Ex-Dividend
Readers hoping to buy Clariant AG (VTX:CLN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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 Clariant's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 3rd of June.
The company's next dividend payment will be CHF00.42 per share, on the back of last year when the company paid a total of CHF0.42 to shareholders. Based on the last year's worth of payments, Clariant stock has a trailing yield of around 2.8% on the current share price of CHF015.01. If you buy this business for its dividend, you should have an idea of whether Clariant's dividend is reliable and sustainable. So we need to investigate whether Clariant can afford its dividend, and if the dividend could grow.
View our latest analysis for Clariant
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in 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. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.
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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Clariant's earnings are down 2.8% a year over the past five years.
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, Clariant has lifted its dividend by approximately 1.6% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Clariant? While earnings per share are shrinking, it's encouraging to see that at least Clariant's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Clariant don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Clariant 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.
