Readers hoping to buy Cal-Maine Foods, Inc. (NASDAQ:CALM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Cal-Maine Foods investors that purchase the stock on or after the 30th of April will not receive the dividend, which will be paid on the 16th of May.
The company's next dividend payment will be US$0.997 per share, and in the last 12 months, the company paid a total of US$5.17 per share. Based on the last year's worth of payments, Cal-Maine Foods stock has a trailing yield of around 8.9% on the current share price of US$58.11. 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 Cal-Maine Foods 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. Fortunately Cal-Maine Foods's payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Cal-Maine Foods'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.
NasdaqGS:CALM Historic Dividend April 26th 2024
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Cal-Maine Foods's earnings per share have risen 17% per annum over the last five years. Cal-Maine Foods is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Cal-Maine Foods has lifted its dividend by approximately 44% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Cal-Maine Foods for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Cal-Maine Foods paid out less than half its earnings and a bit over half its free cash flow. Cal-Maine Foods looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Cal-Maine Foods is facing. For instance, we've identified 4 warning signs for Cal-Maine Foods (1 is a bit unpleasant) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.