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 Calavo Growers, Inc. (NASDAQ:CVGW) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 14th of November to receive the dividend, which will be paid on the 6th of December.
Calavo Growers's upcoming dividend is US$1.1 a share, following on from the last 12 months, when the company distributed a total of US$1.1 per share to shareholders. Based on the last year's worth of payments, Calavo Growers stock has a trailing yield of around 1.3% on the current share price of $86.28. If you buy this business for its dividend, you should have an idea of whether Calavo Growers's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Calavo Growers is paying out an acceptable 58% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Calavo Growers generated enough free cash flow to afford its dividend. Fortunately, it paid out only 33% of its free cash flow in the past year.
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?
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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Calavo Growers's earnings have been skyrocketing, up 23% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Calavo Growers has delivered 12% dividend growth per year on average over the past ten years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
From a dividend perspective, should investors buy or avoid Calavo Growers? We like Calavo Growers's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for Calavo Growers? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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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.