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 Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 3rd of December will not receive this dividend, which will be paid on the 28th of December.
Knight-Swift Transportation Holdings's next dividend payment will be US$0.08 per share. Last year, in total, the company distributed US$0.32 to shareholders. Last year's total dividend payments show that Knight-Swift Transportation Holdings has a trailing yield of 0.8% on the current share price of $41.23. If you buy this business for its dividend, you should have an idea of whether Knight-Swift Transportation Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Knight-Swift Transportation Holdings paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 17% of its free 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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Knight-Swift Transportation Holdings earnings per share are up 9.1% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Knight-Swift Transportation Holdings has delivered an average of 4.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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 Knight-Swift Transportation Holdings? Earnings per share growth has been growing somewhat, and Knight-Swift Transportation Holdings 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Knight-Swift Transportation Holdings is halfway there. There's a lot to like about Knight-Swift Transportation Holdings, and we would prioritise taking a closer look at it.
In light of that, while Knight-Swift Transportation Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Knight-Swift Transportation Holdings that we recommend you consider before investing in the business.
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. 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.
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