Macy's, Inc. (NYSE:M) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 12th of September to receive the dividend, which will be paid on the 1st of October.
Macy's's upcoming dividend is US$0.38 a share, following on from the last 12 months, when the company distributed a total of US$1.51 per share to shareholders. Last year's total dividend payments show that Macy's has a trailing yield of 9.8% on the current share price of $15.39. 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 Macy's 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. That's why it's good to see Macy's paying out a modest 46% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (90%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Macy's'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Macy's's earnings are down 3.3% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Macy's has lifted its dividend by approximately 11% a year on average.
Has Macy's got what it takes to maintain its dividend payments? Earnings per share have fallen significantly, although at least Macy's paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. All things considered, we are not particularly enthused about Macy's from a dividend perspective.
Curious what other investors think of Macy's? 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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