Here's Why We're Wary Of Buying Bayer CropScience's (NSE:BAYERCROP) For Its Upcoming Dividend
It looks like Bayer CropScience Limited (NSE:BAYERCROP) is about to go ex-dividend in the next 3 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Bayer CropScience's shares before the 5th of August to receive the dividend, which will be paid on the 18th of September.
The company's next dividend payment will be ₹60.00 per share. Last year, in total, the company distributed ₹150 to shareholders. Based on the last year's worth of payments, Bayer CropScience has a trailing yield of 3.5% on the current stock price of ₹4234.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Bayer CropScience can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bayer CropScience paid out 98% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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 56% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Bayer CropScience's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
View our latest analysis for Bayer CropScience
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Bayer CropScience earnings per share are up 6.9% per annum over the last 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, 10 years ago, Bayer CropScience has lifted its dividend by approximately 24% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is Bayer CropScience worth buying for its dividend? While earnings per share have been growing slowly, Bayer CropScience is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Bayer CropScience.
With that being said, if you're still considering Bayer CropScience as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 1 warning sign with Bayer CropScience and understanding them should be part of your investment process.
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.