It looks like Core-Mark Holding Company, Inc. (NASDAQ:CORE) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 21st of August will not receive this dividend, which will be paid on the 13th of September.
Core-Mark Holding Company's next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.44 per share. Based on the last year's worth of payments, Core-Mark Holding Company has a trailing yield of 1.3% on the current stock price of $33.42. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Core-Mark Holding Company paid out a comfortable 36% of its profit last year. 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. Fortunately, it paid out only 40% of its free cash flow in the past year.
It's positive to see that Core-Mark Holding Company'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. With that in mind, we're encouraged by the steady growth at Core-Mark Holding Company, with earnings per share up 5.7% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Core-Mark Holding Company has seen its dividend decline 5.3% per annum on average over the past 8 years, which is not great to see. Core-Mark Holding Company 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
Is Core-Mark Holding Company an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Core-Mark Holding Company is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Core-Mark Holding Company is halfway there. Core-Mark Holding Company looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Core-Mark Holding Company? See what analysts 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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