Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Loblaw Companies Limited (TSE:L) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Loblaw Companies' shares on or after the 14th of March, you won't be eligible to receive the dividend, when it is paid on the 1st of April.

The company's next dividend payment will be CA$0.513 per share. Last year, in total, the company distributed CA$2.05 to shareholders. Calculating the last year's worth of payments shows that Loblaw Companies has a trailing yield of 1.1% on the current share price of CA$192.63. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Loblaw Companies

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Loblaw Companies paid out a comfortable 28% of its profit last year. 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 paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.TSX:L Historic Dividend March 9th 2025

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Loblaw Companies's earnings per share have risen 20% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Story Continues

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Loblaw Companies has delivered an average of 7.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.

The Bottom Line

Has Loblaw Companies got what it takes to maintain its dividend payments? We love that Loblaw Companies is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Loblaw Companies has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Loblaw Companies that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.

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