Readers hoping to buy Constellation Brands, Inc. (NYSE:STZ) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend.  The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend.  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.   Accordingly, Constellation Brands investors that purchase the stock on or after the 2nd of May will not receive the dividend, which will be paid on the 17th of May.  

The company's next dividend payment will be US$1.01 per share. Last year, in total, the company distributed US$4.04 to shareholders.  Calculating the last year's worth of payments shows that Constellation Brands has a trailing yield of 1.6% on the current share price of US$260.04.    We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose!  So we need to investigate whether Constellation Brands can afford its dividend, and if the dividend could grow.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut.   That's why it's good to see Constellation Brands paying out a modest 38% of its earnings.     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.     It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.    

It's positive to see that Constellation Brands'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.

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

NYSE:STZ Historic Dividend April 27th 2024

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders.   Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time.     With that in mind, we're discomforted by Constellation Brands's 12% per annum decline in earnings in the past five years.  When earnings per share fall, the maximum amount of dividends that can be paid also falls.      

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth.     In the past nine years, Constellation Brands has increased its dividend at approximately 14% a year on average.      

To Sum It Up

Should investors buy Constellation Brands for the upcoming dividend?      Constellation Brands has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign.        In summary, it's hard to get excited about Constellation Brands from a dividend perspective.  

In light of that, while Constellation Brands has an appealing dividend, it's worth knowing the risks involved with this stock.     Our analysis shows 3 warning signs for Constellation Brands and you should be aware of them before buying any shares.  

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.