Is It Worth Considering KB Home (NYSE:KBH) For Its Upcoming Dividend?
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 KB Home (NYSE:KBH) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 5th of August will not receive the dividend, which will be paid on the 20th of August.
KB Home's next dividend payment will be US$0.09 per share. Last year, in total, the company distributed US$0.36 to shareholders. Based on the last year's worth of payments, KB Home has a trailing yield of 1.1% on the current stock price of $33.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for KB Home
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. KB Home paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 5.8% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that KB Home's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by KB Home's 20% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, KB Home has lifted its dividend by approximately 3.7% a year on average.
Final Takeaway
Is KB Home worth buying for its dividend? KB Home 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. All things considered, we are not particularly enthused about KB Home from a dividend perspective.
On that note, you'll want to research what risks KB Home is facing. For example, we've found 4 warning signs for KB Home that we recommend you consider before investing in the business.
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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