Embecta (NASDAQ:EMBC) Has Affirmed Its Dividend Of $0.15

Embecta Corp. (NASDAQ:EMBC) has announced that it will pay a dividend of $0.15 per share on the 14th of June. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Embecta

Embecta's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Embecta's dividend was only 49% of earnings, however it was paying out 368% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to fall by 11.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 56%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Embecta Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The last annual payment of $0.60 was flat on the annual payment from2 years ago. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past three years, it looks as though Embecta's EPS has declined at around 45% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Embecta's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 6 warning signs for Embecta you should be aware of, and 3 of them are a bit unpleasant. Is Embecta not quite the opportunity you were looking for? Why not check out 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.