Columbus McKinnon Corporation (NASDAQ:CMCO) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Columbus McKinnon investors that purchase the stock on or after the 4th of August will not receive the dividend, which will be paid on the 15th of August.
The company's next dividend payment will be US$0.07 per share, on the back of last year when the company paid a total of US$0.28 to shareholders. Calculating the last year's worth of payments shows that Columbus McKinnon has a trailing yield of 0.8% on the current share price of $33.1. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Columbus McKinnon paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Columbus McKinnon generated enough free cash flow to afford its dividend. The good news is it paid out just 22% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Columbus McKinnon has grown its earnings rapidly, up 29% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Columbus McKinnon looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past eight years, Columbus McKinnon has increased its dividend at approximately 7.2% 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.
Has Columbus McKinnon got what it takes to maintain its dividend payments? Columbus McKinnon has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Columbus McKinnon looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Columbus McKinnon looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Columbus McKinnon is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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