Gildan Activewear (TSE:GIL) Could Be A Buy For Its Upcoming Dividend

Gildan Activewear Inc. (TSE:GIL) stock is about to trade ex-dividend in three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Gildan Activewear investors that purchase the stock on or after the 20th of May will not receive the dividend, which will be paid on the 16th of June.

The company's next dividend payment will be US$0.226 per share. Last year, in total, the company distributed US$0.90 to shareholders. Based on the last year's worth of payments, Gildan Activewear has a trailing yield of 1.8% on the current stock price of CA$68.86. If you buy this business for its dividend, you should have an idea of whether Gildan Activewear's dividend is reliable and sustainable. So we need to investigate whether Gildan Activewear can afford its dividend, and if the dividend could grow.

We've discovered 2 warning signs about Gildan Activewear. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Gildan Activewear paying out a modest 33% of its earnings. 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 paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Gildan Activewear'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.

See our latest analysis for Gildan Activewear

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Gildan Activewear's earnings per share have risen 16% per annum over the last five years. Gildan Activewear has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Gildan Activewear has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Gildan Activewear an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Gildan Activewear, and we would prioritise taking a closer look at it.

While it's tempting to invest in Gildan Activewear for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Gildan Activewear that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.