It looks like Reynolds Consumer Products Inc. (NASDAQ:REYN) is about to go ex-dividend in the next 3 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 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. Accordingly, Reynolds Consumer Products investors that purchase the stock on or after the 16th of November will not receive the dividend, which will be paid on the 30th of November.
The company's next dividend payment will be US$0.23 per share, and in the last 12 months, the company paid a total of US$0.92 per share. Based on the last year's worth of payments, Reynolds Consumer Products stock has a trailing yield of around 3.7% on the current share price of US$24.81. If you buy this business for its dividend, you should have an idea of whether Reynolds Consumer Products's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Reynolds Consumer Products paid out 60% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 69% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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.
View our latest analysis for Reynolds Consumer Products
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. That's why it's not ideal to see Reynolds Consumer Products's earnings per share have been shrinking at 2.9% a year over the previous five years.
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, seven years ago, Reynolds Consumer Products has lifted its dividend by approximately 6.3% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Is Reynolds Consumer Products worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Reynolds Consumer Products.
Although, if you're still interested in Reynolds Consumer Products and want to know more, you'll find it very useful to know what risks this stock faces. For example - Reynolds Consumer Products has 1 warning sign we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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