There's A Lot To Like About CSP's (NASDAQ:CSPI) Upcoming US$0.04 Dividend
CSP Inc. (NASDAQ:CSPI) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase CSP's shares before the 21st of December in order to be eligible for the dividend, which will be paid on the 9th of January.
The company's next dividend payment will be US$0.04 per share. Last year, in total, the company distributed US$0.16 to shareholders. Looking at the last 12 months of distributions, CSP has a trailing yield of approximately 1.0% on its current stock price of $16.7. 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 CSP has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for CSP
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CSP has a low and conservative payout ratio of just 13% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 18% of its free cash flow last year.
It's positive to see that CSP's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit CSP paid out over the last 12 months.
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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see CSP's earnings have been skyrocketing, up 75% per annum for the past five years. CSP 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.'
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. CSP has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
Should investors buy CSP for the upcoming dividend? CSP has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
So while CSP looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 3 warning signs for CSP you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
