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 four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase DICK’S Sporting Goods’ shares on or after the 10th of June, you won’t be eligible to receive the dividend, when it is paid on the 25th of June.
The company’s next dividend payment will be US$0.36 per share. Last year, in total, the company distributed US$1.45 to shareholders. Based on the last year’s worth of payments, DICK’S Sporting Goods stock has a trailing yield of around 1.5% on the current share price of $97.47. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether DICK’S Sporting Goods can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. DICK’S Sporting Goods has a low and conservative payout ratio of just 11% of its income after tax. 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. Luckily it paid out just 5.7% of its free cash flow 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see DICK’S Sporting Goods’s earnings have been skyrocketing, up 34% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, DICK’S Sporting Goods looks like a promising growth company.
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 11% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is DICK’S Sporting Goods an attractive dividend stock, or better left on the shelf? It’s great that DICK’S Sporting Goods is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There’s a lot to like about DICK’S Sporting Goods, and we would prioritise taking a closer look at it.
So while DICK’S Sporting Goods looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For instance, we’ve identified 4 warning signs for DICK’S Sporting Goods (1 is potentially serious) you should be aware of.
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.
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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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