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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Carrier Global Corporation (NYSE:CARR) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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 Carrier Global's shares on or after the 28th of April, you won't be eligible to receive the dividend, when it is paid on the 19th of May.
The company's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Based on the last year's worth of payments, Carrier Global has a trailing yield of 1.4% on the current stock price of $41.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Carrier Global can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Carrier Global
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Carrier Global paid out a comfortable 27% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow 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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Carrier Global's 15% per annum decline in earnings in the past three years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past two years, Carrier Global has increased its dividend at approximately 37% a year on average.