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Readers hoping to buy Baxter International Inc. (NYSE:BAX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 28th of August in order to be eligible for this dividend, which will be paid on the 1st of October.
Baxter International's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.98 per share to shareholders. Based on the last year's worth of payments, Baxter International has a trailing yield of 1.2% on the current stock price of $83.09. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Baxter International
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. Fortunately Baxter International's payout ratio is modest, at just 48% of profit. 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. Fortunately, it paid out only 28% of its free cash flow in the past 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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Baxter International's earnings per share have risen 17% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Baxter International has seen its dividend decline 1.7% per annum on average over the past 10 years, which is not great to see.