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 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Becton Dickinson investors that purchase the stock on or after the 9th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be US$0.95 per share. Last year, in total, the company distributed US$3.80 to shareholders. Based on the last year's worth of payments, Becton Dickinson has a trailing yield of 1.6% on the current stock price of US$242.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Becton Dickinson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Becton Dickinson paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Becton Dickinson's earnings have been skyrocketing, up 52% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Becton Dickinson could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Becton Dickinson has lifted its dividend by approximately 5.7% a year on average. 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.

The Bottom Line

Is Becton Dickinson worth buying for its dividend? We like Becton Dickinson's growing earnings per share and the fact that - while its payout ratio is around average - 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. For example, we've found 2 warning signs for Becton Dickinson that we recommend you consider before investing in the business.

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.