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Readers hoping to buy Tate & Lyle plc (LON:TATE) 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Tate & Lyle's shares on or after the 23rd of November, you won't be eligible to receive the dividend, when it is paid on the 5th of January.
The company's next dividend payment will be UK£0.062 per share. Last year, in total, the company distributed UK£0.18 to shareholders. Based on the last year's worth of payments, Tate & Lyle stock has a trailing yield of around 2.9% on the current share price of £6.375. 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 check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Tate & Lyle
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Tate & Lyle's payout ratio is modest, at just 44% 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. Over the last year, it paid out dividends equivalent to 317% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Tate & Lyle intends to continue funding this dividend, or if it could be forced to cut the payment.
Tate & Lyle paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Tate & Lyle to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Tate & Lyle's earnings per share have fallen at approximately 8.1% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.