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Why You Might Be Interested In Parker-Hannifin Corporation (NYSE:PH) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Parker-Hannifin Corporation (NYSE:PH) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Parker-Hannifin's shares on or after the 9th of February, you won't be eligible to receive the dividend, when it is paid on the 3rd of March.

The company's next dividend payment will be US$1.33 per share. Last year, in total, the company distributed US$5.32 to shareholders. Last year's total dividend payments show that Parker-Hannifin has a trailing yield of 1.5% on the current share price of $350. If you buy this business for its dividend, you should have an idea of whether Parker-Hannifin's dividend is reliable and sustainable. As a result, readers should always check whether Parker-Hannifin has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Parker-Hannifin

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Parker-Hannifin has a low and conservative payout ratio of just 24% of its income after tax. 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. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

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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.

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historic-dividend

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. This is why it's a relief to see Parker-Hannifin earnings per share are up 5.9% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Parker-Hannifin has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Parker-Hannifin got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Parker-Hannifin is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Parker-Hannifin is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Parker-Hannifin is facing. Our analysis shows 4 warning signs for Parker-Hannifin that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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