Readers hoping to buy The Charles Schwab Corporation (NYSE:SCHW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 6th of August to receive the dividend, which will be paid on the 28th of August.
Charles Schwab's next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$0.72 to shareholders. Last year's total dividend payments show that Charles Schwab has a trailing yield of 2.2% on the current share price of $33.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Charles Schwab has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Charles Schwab's payout ratio is modest, at just 29% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Charles Schwab's earnings per share have been growing at 20% 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. Charles Schwab has delivered 12% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Has Charles Schwab got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Charles Schwab appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
On that note, you'll want to research what risks Charles Schwab is facing. In terms of investment risks, we've identified 1 warning sign with Charles Schwab and understanding them should be part of your investment process.
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.
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. 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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