Should Income Investors Look At Krka, d. d. (LJSE:KRKG) Before Its Ex-Dividend?

Krka, d. d. (LJSE:KRKG) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Krka d. d investors that purchase the stock on or after the 21st of July will not receive the dividend, which will be paid on the 23rd of July.

The company’s next dividend payment will be €9.10 per share. Last year, in total, the company distributed €9.10 to shareholders. Based on the last year’s worth of payments, Krka d. d stock has a trailing yield of around 3.4% on the current share price of €268.00. 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 Krka d. d can afford its dividend, and if the dividend could grow.

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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. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We’d be concerned if earnings began to decline. 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 71% of its free cash flow as dividends, within the usual range for most companies.

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.

See our latest analysis for Krka d. d

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re encouraged by the steady growth at Krka d. d, with earnings per share up 5.8% on average over the last five years. Decent historical earnings per share growth suggests Krka d. d has been effectively growing value for shareholders. However, it’s now paying out more than half its earnings as dividends. Therefore it’s unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Krka d. d has lifted its dividend by approximately 13% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Krka d. d for the upcoming dividend? Earnings per share have been growing modestly and Krka d. d paid out a bit over half of its earnings and free cash flow last year. Overall we’re not hugely bearish on the stock, but there are likely better dividend investments out there.

Wondering what the future holds for Krka d. d? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.