Is It Smart To Buy Interparfums, Inc. (NASDAQ:IPAR) Before It Goes Ex-Dividend?

Interparfums, Inc. (NASDAQ:IPAR) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day 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. 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 Interparfums' shares before the 15th of September in order to receive the dividend, which the company will pay on the 30th of September.

The company's next dividend payment will be US$0.80 per share. Last year, in total, the company distributed US$3.20 to shareholders. Based on the last year's worth of payments, Interparfums has a trailing yield of 2.9% on the current stock price of US$110.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Interparfums paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's positive to see that Interparfums'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 Interparfums

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Interparfums's earnings have been skyrocketing, up 34% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Interparfums could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Interparfums has lifted its dividend by approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy Interparfums for the upcoming dividend? We like Interparfums's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Interparfums looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Interparfums looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Interparfums 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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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.