State Street Corporation (NYSE:STT) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 31st of March in order to be eligible for this dividend, which will be paid on the 15th of April.
State Street's next dividend payment will be US$0.52 per share. Last year, in total, the company distributed US$2.08 to shareholders. Calculating the last year's worth of payments shows that State Street has a trailing yield of 4.2% on the current share price of $49.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Fortunately State Street's payout ratio is modest, at just 36% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at State Street, with earnings per share up 3.3% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, State Street has lifted its dividend by approximately 48% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy State Street for the upcoming dividend? State Street has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. In summary, State Street appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
So while State Street looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - State Street has 1 warning sign we think you should be aware of.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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