It Might Not Be A Great Idea To Buy Calavo Growers, Inc. (NASDAQ:CVGW) For Its Next Dividend
Readers hoping to buy Calavo Growers, Inc. (NASDAQ:CVGW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Calavo Growers' shares before the 23rd of March to receive the dividend, which will be paid on the 6th of April.
The company's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$1.15 to shareholders. Based on the last year's worth of payments, Calavo Growers stock has a trailing yield of around 1.8% on the current share price of $22.8. 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 Calavo Growers has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Calavo Growers
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. Calavo Growers paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Calavo Growers didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 18% of its free cash flow in the last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Calavo Growers reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Calavo Growers's dividend payments per share have declined at 4.7% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Remember, you can always get a snapshot of Calavo Growers's financial health, by checking our visualisation of its financial health, here.
Has Calavo Growers got what it takes to maintain its dividend payments? It's hard to get used to Calavo Growers paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Calavo Growers is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in Calavo Growers despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Calavo Growers that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here