Readers hoping to buy Regal Beloit Corporation (NYSE:RBC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 26th of March will not receive the dividend, which will be paid on the 9th of April.
Regal Beloit's next dividend payment will be US$0.30 per share. Last year, in total, the company distributed US$1.20 to shareholders. Calculating the last year's worth of payments shows that Regal Beloit has a trailing yield of 2.1% on the current share price of $57.66. If you buy this business for its dividend, you should have an idea of whether Regal Beloit's dividend is reliable and sustainable. As a result, readers should always check whether Regal Beloit has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Regal Beloit has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Regal Beloit 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 15% of its cash flow last year.
It's positive to see that Regal Beloit'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.
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. That's why it's comforting to see Regal Beloit's earnings have been skyrocketing, up 53% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Regal Beloit looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Regal Beloit has lifted its dividend by approximately 6.5% 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.
The Bottom Line
Is Regal Beloit an attractive dividend stock, or better left on the shelf? We love that Regal Beloit 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. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Regal Beloit has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Regal Beloit and you should be aware of them before buying any 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.