Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Carpenter Technology Corporation (NYSE:CRS) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 26th of August will not receive this dividend, which will be paid on the 5th of September.
Carpenter Technology's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Looking at the last 12 months of distributions, Carpenter Technology has a trailing yield of approximately 1.7% on its current stock price of $47.16. 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 Carpenter Technology has been able to grow its dividends, or if the dividend might be cut.
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. Carpenter Technology has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Carpenter Technology generated enough free cash flow to afford its dividend. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range 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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Carpenter Technology, with earnings per share up 7.1% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Carpenter Technology has lifted its dividend by approximately 1.1% a year on average.
Is Carpenter Technology an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Carpenter Technology is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. To summarise, Carpenter Technology looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Curious what other investors think of Carpenter Technology? See what analysts 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.
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.
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.