Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Cass Information Systems, Inc. (NASDAQ:CASS) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 30th of August, you won't be eligible to receive this dividend, when it is paid on the 13th of September.
Cass Information Systems's next dividend payment will be US$0.26 per share, and in the last 12 months, the company paid a total of US$1.04 per share. Calculating the last year's worth of payments shows that Cass Information Systems has a trailing yield of 2.2% on the current share price of $48.35. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Cass Information Systems's payout ratio is modest, at just 48% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 31% of its free cash flow in the past 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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Cass Information Systems, with earnings per share up 6.1% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Cass Information Systems has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Cass Information Systems? Earnings per share growth has been growing somewhat, and Cass Information Systems is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Cass Information Systems is being conservative with its dividend payouts and could still perform reasonably over the long run. Cass Information Systems looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Keen to explore more data on Cass Information Systems's financial performance? Check out our visualisation of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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