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Is It Worth Considering Clarkson PLC (LON:CKN) For Its Upcoming Dividend?

Simply Wall St

It looks like Clarkson PLC (LON:CKN) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 5th of September will not receive this dividend, which will be paid on the 20th of September.

Clarkson's upcoming dividend is UK£0.25 a share, following on from the last 12 months, when the company distributed a total of UK£0.75 per share to shareholders. Looking at the last 12 months of distributions, Clarkson has a trailing yield of approximately 3.3% on its current stock price of £23. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Clarkson has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Clarkson

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Clarkson paid out 74% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

LSE:CKN Historical Dividend Yield, September 1st 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Clarkson, with earnings per share up 4.5% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

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, 10 years ago, Clarkson has lifted its dividend by approximately 6.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Clarkson for the upcoming dividend? While earnings per share growth has been modest, Clarkson'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. In summary, while it has some positive characteristics, we're not inclined to race out and buy Clarkson today.

Ever wonder what the future holds for Clarkson? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.