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 Royal Caribbean Cruises Ltd. (NYSE:RCL) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 5th of March to receive the dividend, which will be paid on the 6th of April.
Royal Caribbean Cruises's upcoming dividend is US$0.78 a share, following on from the last 12 months, when the company distributed a total of US$3.12 per share to shareholders. Last year's total dividend payments show that Royal Caribbean Cruises has a trailing yield of 3.9% on the current share price of $80.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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 Royal Caribbean Cruises paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Royal Caribbean Cruises generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Royal Caribbean Cruises'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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Royal Caribbean Cruises has grown its earnings rapidly, up 21% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, Royal Caribbean Cruises has increased its dividend at approximately 26% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Royal Caribbean Cruises? Earnings per share have grown at a nice rate in recent times and over the last year, Royal Caribbean Cruises paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Royal Caribbean Cruises? See what the 17 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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