Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Becton, Dickinson and Company (NYSE:BDX) is about to go ex-dividend in just 3 days. 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. Meaning, you will need to purchase Becton Dickinson's shares before the 9th of June to receive the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be US$1.05 per share, and in the last 12 months, the company paid a total of US$4.20 per share. Calculating the last year's worth of payments shows that Becton Dickinson has a trailing yield of 2.8% on the current share price of US$149.56. If you buy this business for its dividend, you should have an idea of whether Becton Dickinson's dividend is reliable and sustainable. So we need to investigate whether Becton Dickinson can afford its dividend, and if the dividend could grow.

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. Becton Dickinson paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Becton Dickinson generated enough free cash flow to afford its dividend. Fortunately, it paid out only 39% of its free cash flow in the past year.

It's positive to see that Becton Dickinson'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Becton Dickinson's earnings have been skyrocketing, up 47% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Becton Dickinson has delivered an average of 5.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Becton Dickinson is keeping back more of its profits to grow the business.

Final Takeaway

Is Becton Dickinson worth buying for its dividend? Becton Dickinson's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Becton Dickinson, and we would prioritise taking a closer look at it.

While it's tempting to invest in Becton Dickinson for the dividends alone, you should always be mindful of the risks involved.

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

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.