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 Jabil Inc. (NYSE:JBL) is about to go ex-dividend in just 4 days. You can purchase shares before the 14th of August in order to receive the dividend, which the company will pay on the 3rd of September.
Jabil's next dividend payment will be US$0.08 per share, and in the last 12 months, the company paid a total of US$0.32 per share. Looking at the last 12 months of distributions, Jabil has a trailing yield of approximately 1.1% on its current stock price of $28.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are 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. Fortunately Jabil's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Jabil generated enough free cash flow to afford its dividend. The good news is it paid out just 3.8% of its free cash flow in the last 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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Jabil's earnings per share have fallen at approximately 6.8% a year over the previous 5 years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jabil has delivered an average of 1.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Has Jabil got what it takes to maintain its dividend payments? Jabil has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy Jabil today.
Curious what other investors think of Jabil? See what analysts 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.
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