It looks like Schneider National, Inc. (NYSE:SNDR) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 12th of December will not receive the dividend, which will be paid on the 9th of January.
Schneider National's next dividend payment will be US$0.06 per share, on the back of last year when the company paid a total of US$0.24 to shareholders. Last year's total dividend payments show that Schneider National has a trailing yield of 1.1% on the current share price of $22.37. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's 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. Schneider National paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Schneider National's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 44% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Schneider National has delivered an average of 9.5% per year annual increase in its dividend, based on the past two years of dividend payments.
Should investors buy Schneider National for the upcoming dividend? Earnings per share have fallen significantly, although at least Schneider National paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Ever wonder what the future holds for Schneider National? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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