It looks like Cargotec Corporation (HEL:CGCBV) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 18th of March to receive the dividend, which will be paid on the 26th of March.
Cargotec's next dividend payment will be €0.60 per share. Last year, in total, the company distributed €1.20 to shareholders. Based on the last year's worth of payments, Cargotec stock has a trailing yield of around 6.4% on the current share price of €18.84. If you buy this business for its dividend, you should have an idea of whether Cargotec's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 30% 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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Cargotec earnings per share are up 4.6% per annum over the last five years. A high payout ratio of 86% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Cargotec could be signalling that its future growth prospects are thin.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Cargotec 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
Is Cargotec worth buying for its dividend? While earnings per share growth has been modest, Cargotec's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, Cargotec looks okay on this analysis, although it doesn't appear a stand-out opportunity.
So while Cargotec looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 4 warning signs for Cargotec and you should be aware of them before buying any shares.
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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