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Interested In Cabot Microelectronics Corporation (NASDAQ:CCMP)’s Upcoming 0.4% Dividend? You Have 4 Days Left

It looks like Cabot Microelectronics Corporation (NASDAQ:CCMP) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 23rd of March, you won't be eligible to receive this dividend, when it is paid on the 24th of April.

Cabot Microelectronics's next dividend payment will be US$0.44 per share, and in the last 12 months, the company paid a total of US$1.68 per share. Based on the last year's worth of payments, Cabot Microelectronics has a trailing yield of 1.7% on the current stock price of $103.75. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Cabot Microelectronics

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started 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. It distributed 36% of its free cash flow as dividends, a comfortable payout level 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:CCMP Historical Dividend Yield, March 18th 2020
NasdaqGS:CCMP Historical Dividend Yield, March 18th 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Cabot Microelectronics's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 76% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Cabot Microelectronics could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cabot Microelectronics has delivered an average of 25% per year annual increase in its dividend, based on the past four years of dividend payments.

Final Takeaway

Is Cabot Microelectronics an attractive dividend stock, or better left on the shelf? Earnings per share have been flat and Cabot Microelectronics's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. In summary, while it has some positive characteristics, we're not inclined to race out and buy Cabot Microelectronics today.

On that note, you'll want to research what risks Cabot Microelectronics is facing. For example - Cabot Microelectronics has 5 warning signs we think you should be aware of.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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