Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Park-Ohio Holdings Corp. (NASDAQ:PKOH) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 12th of August to receive the dividend, which will be paid on the 27th of August.
Park-Ohio Holdings's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.50 to shareholders. Looking at the last 12 months of distributions, Park-Ohio Holdings has a trailing yield of approximately 1.8% on its current stock price of $27.26. If you buy this business for its dividend, you should have an idea of whether Park-Ohio Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Park-Ohio Holdings is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Fortunately, it paid out only 46% 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?
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Park-Ohio Holdings earnings per share are up 3.0% per annum over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Park-Ohio Holdings's dividend payments are broadly unchanged compared to where they were five years ago.
Is Park-Ohio Holdings an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Park-Ohio Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Park-Ohio Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. Park-Ohio Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Park-Ohio Holdings? See what the four analysts we track 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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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.