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Is It Worth Considering DICK'S Sporting Goods, Inc. (NYSE:DKS) For Its Upcoming Dividend?

Simply Wall St

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 DICK'S Sporting Goods, Inc. (NYSE:DKS) is about to go ex-dividend in just 4 days. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 27th of September.

DICK'S Sporting Goods's next dividend payment will be US$0.28 per share, on the back of last year when the company paid a total of US$1.10 to shareholders. Calculating the last year's worth of payments shows that DICK'S Sporting Goods has a trailing yield of 3.1% on the current share price of $35.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for DICK'S Sporting Goods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately DICK'S Sporting Goods's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether DICK'S Sporting Goods generated enough free cash flow to afford its dividend. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

NYSE:DKS Historical Dividend Yield, September 7th 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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see DICK'S Sporting Goods earnings per share are up 4.0% per annum 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. DICK'S Sporting Goods has delivered 10% dividend growth per year on average over the past 8 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid DICK'S Sporting Goods? Earnings per share growth has been modest, and it's interesting that DICK'S Sporting Goods is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's hard to get excited about DICK'S Sporting Goods from a dividend perspective.

Ever wonder what the future holds for DICK'S Sporting Goods? See what the 21 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.