Scorpio Bulkers Inc. (NYSE:SALT) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 14th of August will not receive this dividend, which will be paid on the 13th of September.
Scorpio Bulkers's next dividend payment will be US$0.02 per share, and in the last 12 months, the company paid a total of US$0.08 per share. Last year's total dividend payments show that Scorpio Bulkers has a trailing yield of 1.4% on the current share price of $5.55. 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! So we need to check whether the dividend payments are covered, and if earnings are 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. Scorpio Bulkers has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Scorpio Bulkers generated enough free cash flow to afford its dividend. Luckily it paid out just 17% of its free cash flow last 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 encouraging to see Scorpio Bulkers has grown its earnings rapidly, up 58% a year for the past five years. Scorpio Bulkers earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Scorpio Bulkers's dividend payments are broadly unchanged compared to where they were two years ago.
The Bottom Line
Is Scorpio Bulkers an attractive dividend stock, or better left on the shelf? Scorpio Bulkers has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Scorpio Bulkers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Scorpio Bulkers? See what the nine 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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