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Is It Smart To Buy Commercial Metals Company (NYSE:CMC) Before It Goes Ex-Dividend?

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Simply Wall St
·4 min read
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Commercial Metals Company (NYSE:CMC) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 30th of March to receive the dividend, which will be paid on the 14th of April.

Commercial Metals's upcoming dividend is US$0.12 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Based on the last year's worth of payments, Commercial Metals stock has a trailing yield of around 1.7% on the current share price of $28.03. 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.

Check out our latest analysis for Commercial Metals

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. Commercial Metals is paying out just 22% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Commercial Metals's earnings have been skyrocketing, up 32% per annum for the past five years. Commercial Metals looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Commercial Metals dividends are largely the same as they were 10 years ago.

To Sum It Up

Is Commercial Metals worth buying for its dividend? Commercial Metals 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. There's a lot to like about Commercial Metals, and we would prioritise taking a closer look at it.

In light of that, while Commercial Metals has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Commercial Metals has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.