It looks like Crane Co. (NYSE:CR) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 27th of February to receive the dividend, which will be paid on the 11th of March.
Crane's upcoming dividend is US$0.43 a share, following on from the last 12 months, when the company distributed a total of US$1.72 per share to shareholders. Last year's total dividend payments show that Crane has a trailing yield of 2.0% on the current share price of $84.93. 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! 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. Crane paid out 70% of its earnings to investors last year, a normal payout level for most businesses. 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 29% 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 shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Crane's earnings per share have dropped 7.4% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Crane has increased its dividend at approximately 8.0% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
From a dividend perspective, should investors buy or avoid Crane? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Crane's dividend merits.
Curious what other investors think of Crane? 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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