Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Videndum Plc (LON:VID) is about to trade ex-dividend in the next four days. 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 Videndum's shares on or after the 20th of April will not receive the dividend, which will be paid on the 19th of May.
The company's next dividend payment will be UK£0.25 per share, and in the last 12 months, the company paid a total of UK£0.40 per share. Calculating the last year's worth of payments shows that Videndum has a trailing yield of 4.7% on the current share price of £8.45. 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! So we need to investigate whether Videndum can afford its dividend, and if the dividend could grow.
See our latest analysis for Videndum
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Videndum is paying out an acceptable 56% of its profit, a common payout level among most companies. 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. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Videndum'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Videndum has grown its earnings rapidly, up 25% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.