Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Woolworths Group Limited (ASX:WOW) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Woolworths Group's shares before the 31st of August in order to receive the dividend, which the company will pay on the 27th of September.

The company's upcoming dividend is AU$0.58 a share, following on from the last 12 months, when the company distributed a total of AU$1.04 per share to shareholders. Looking at the last 12 months of distributions, Woolworths Group has a trailing yield of approximately 2.8% on its current stock price of A$37.41. If you buy this business for its dividend, you should have an idea of whether Woolworths Group's dividend is reliable and sustainable. So we need to investigate whether Woolworths Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Woolworths Group

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. Its dividend payout ratio is 78% 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. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends. historic-dividend

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Woolworths Group's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 78% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Woolworths Group could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Woolworths Group's dividend payments per share have declined at 2.1% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Is Woolworths Group an attractive dividend stock, or better left on the shelf? It's unfortunate that earnings per share have not grown, and we'd note that Woolworths Group is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. To summarise, Woolworths Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Curious what other investors think of Woolworths Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.