Collectors Universe, Inc. (NASDAQ:CLCT) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 15th of August, you won't be eligible to receive this dividend, when it is paid on the 30th of August.
Collectors Universe's next dividend payment will be US$0.17 per share, and in the last 12 months, the company paid a total of US$0.70 per share. Calculating the last year's worth of payments shows that Collectors Universe has a trailing yield of 3.1% on the current share price of $22.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Collectors Universe has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 48% of its free cash flow in the past year.
It's positive to see that Collectors Universe'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Collectors Universe, with earnings per share up 5.0% on average over the last five years. A payout ratio of 76% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Collectors Universe has seen its dividend decline 3.5% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Has Collectors Universe got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Collectors Universe's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Keen to explore more data on Collectors Universe's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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