Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CRA International, Inc. (NASDAQ:CRAI) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 25th of November to receive the dividend, which will be paid on the 13th of December.
CRA International's next dividend payment will be US$0.23 per share, on the back of last year when the company paid a total of US$0.92 to shareholders. Based on the last year's worth of payments, CRA International stock has a trailing yield of around 1.8% on the current share price of $49.9. 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 CRA International 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. That's why it's good to see CRA International paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether CRA International generated enough free cash flow to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 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 CRA International's earnings have been skyrocketing, up 21% per annum 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. CRA International has delivered 18% dividend growth per year on average over the past three years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid CRA International? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of 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.
Ever wonder what the future holds for CRA International? See what the two 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 email@example.com. 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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