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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 Rentokil Initial plc (LON:RTO) is about to trade ex-dividend in the next day or two. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Rentokil Initial's shares on or after the 3rd of August will not receive the dividend, which will be paid on the 11th of September.
The company's next dividend payment will be UK£0.028 per share, and in the last 12 months, the company paid a total of UK£0.079 per share. Based on the last year's worth of payments, Rentokil Initial stock has a trailing yield of around 1.2% on the current share price of £6.35. If you buy this business for its dividend, you should have an idea of whether Rentokil Initial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Rentokil Initial
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Rentokil Initial paid out 63% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 37% of its free cash flow in the past year.
It's positive to see that Rentokil Initial'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?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Rentokil Initial's earnings per share have fallen at approximately 21% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.