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 Polaris Inc. (NYSE:PII) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 30th of August will not receive the dividend, which will be paid on the 16th of September.
Polaris's next dividend payment will be US$0.61 per share, on the back of last year when the company paid a total of US$2.44 to shareholders. Last year's total dividend payments show that Polaris has a trailing yield of 3.1% on the current share price of $77.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Polaris's payout ratio is modest, at just 46% of profit. 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. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Polaris'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?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Polaris's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Polaris has delivered 12% dividend growth per year on average over the past 10 years.
To Sum It Up
Is Polaris worth buying for its dividend? Its earnings per share are effectively flat in recent times. The company paid out less than half its income and more than half its cash flow as dividends to shareholders. To summarise, Polaris looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Polaris? See what the 16 analysts we track 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.
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