CompX International Inc. (NYSEMKT:CIX) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 30th of August in order to be eligible for this dividend, which will be paid on the 10th of September.
CompX International's next dividend payment will be US$0.07 per share, and in the last 12 months, the company paid a total of US$0.28 per share. Calculating the last year's worth of payments shows that CompX International has a trailing yield of 1.9% on the current share price of $14.68. If you buy this business for its dividend, you should have an idea of whether CompX International's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CompX International is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Luckily it paid out just 22% of its free cash flow last year.
It's positive to see that CompX International'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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see CompX International's earnings have been skyrocketing, up 21% per annum for the past five years. CompX International earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CompX International has seen its dividend decline 5.6% per annum on average over the past 10 years, which is not great to see. CompX International is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Should investors buy CompX International for the upcoming dividend? CompX International has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
Keen to explore more data on CompX International's financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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