Clearwater Seafoods Incorporated (TSE:CLR) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 16th of August, you won't be eligible to receive this dividend, when it is paid on the 3rd of September.
Clearwater Seafoods's upcoming dividend is CA$0.05 a share, following on from the last 12 months, when the company distributed a total of CA$0.20 per share to shareholders. Based on the last year's worth of payments, Clearwater Seafoods has a trailing yield of 3.7% on the current stock price of CA$5.4. 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. Clearwater Seafoods reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Clearwater Seafoods reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Clearwater Seafoods has delivered an average of 12% per year annual increase in its dividend, based on the past 6 years of dividend payments.
From a dividend perspective, should investors buy or avoid Clearwater Seafoods? It's hard to get used to Clearwater Seafoods paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. In summary, while it has some positive characteristics, we're not inclined to race out and buy Clearwater Seafoods today.
Wondering what the future holds for Clearwater Seafoods? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. Thank you for reading.