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 Carl Zeiss Meditec AG (ETR:AFX) is about to go ex-dividend in just 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Carl Zeiss Meditec's shares before the 27th of March in order to be eligible for the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be €0.60 per share, and in the last 12 months, the company paid a total of €0.60 per share. Looking at the last 12 months of distributions, Carl Zeiss Meditec has a trailing yield of approximately 0.9% on its current stock price of €63.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Carl Zeiss Meditec can afford its dividend, and if the dividend could grow.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Carl Zeiss Meditec paid out a comfortable 34% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Carl Zeiss Meditec paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Carl Zeiss Meditec to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Carl Zeiss Meditec

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.XTRA:AFX Historic Dividend March 23rd 2025

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Carl Zeiss Meditec'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. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Carl Zeiss Meditec has delivered 4.1% dividend growth per year on average over the past 10 years.

The Bottom Line

Is Carl Zeiss Meditec an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown in this time, and although Carl Zeiss Meditec is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Carl Zeiss Meditec's dividend merits.

If you want to look further into Carl Zeiss Meditec, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 2 warning signs for Carl Zeiss Meditec you should know about.

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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