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Is It Smart To Buy Knight-Swift Transportation Holdings Inc. (NYSE:KNX) Before It Goes Ex-Dividend?

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  • KNX

It looks like Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Knight-Swift Transportation Holdings' shares before the 2nd of December in order to be eligible for the dividend, which will be paid on the 27th of December.

The company's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, Knight-Swift Transportation Holdings stock has a trailing yield of around 0.7% on the current share price of $57.39. 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! As a result, readers should always check whether Knight-Swift Transportation Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Knight-Swift Transportation Holdings

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. Knight-Swift Transportation Holdings paid out just 9.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Knight-Swift Transportation Holdings generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 11% 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Knight-Swift Transportation Holdings has grown its earnings rapidly, up 22% a year for the past five years. Knight-Swift Transportation Holdings 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Knight-Swift Transportation Holdings has lifted its dividend by approximately 5.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Knight-Swift Transportation Holdings is keeping back more of its profits to grow the business.

Final Takeaway

Is Knight-Swift Transportation Holdings worth buying for its dividend? We love that Knight-Swift Transportation Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Knight-Swift Transportation Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in Knight-Swift Transportation Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Knight-Swift Transportation Holdings that you should be aware of before investing in their shares.

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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.