Readers hoping to buy Stryker Corporation (NYSE:SYK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. This means that investors who purchase Stryker's shares on or after the 28th of June will not receive the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be US$0.80 per share, on the back of last year when the company paid a total of US$3.20 to shareholders. Looking at the last 12 months of distributions, Stryker has a trailing yield of approximately 0.9% on its current stock price of US$342.64. If you buy this business for its dividend, you should have an idea of whether Stryker's dividend is reliable and sustainable. So we need to investigate whether Stryker 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. That's why it's good to see Stryker paying out a modest 35% of its earnings. A useful secondary check can be to evaluate whether Stryker generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Stryker'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.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Stryker's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Stryker has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Is Stryker an attractive dividend stock, or better left on the shelf? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. All things considered, we are not particularly enthused about Stryker from a dividend perspective.

In light of that, while Stryker has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Stryker and you should be aware of these before buying any shares.

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.

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