Caleres, Inc. (NYSE:CAL) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 10th of September to receive the dividend, which will be paid on the 2nd of October.
Caleres's next dividend payment will be US$0.07 per share, and in the last 12 months, the company paid a total of US$0.28 per share. Calculating the last year's worth of payments shows that Caleres has a trailing yield of 2.8% on the current share price of $9.86. If you buy this business for its dividend, you should have an idea of whether Caleres's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. Caleres reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Caleres was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Caleres dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Remember, you can always get a snapshot of Caleres's financial health, by checking our visualisation of its financial health, here.
Has Caleres got what it takes to maintain its dividend payments? It's hard to get used to Caleres paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Caleres has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Caleres don't faze you, it's worth being mindful of the risks involved with this business. For example - Caleres has 3 warning signs we think you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top 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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