Clover Corporation Limited (ASX:CLV) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 27th of October, you won't be eligible to receive this dividend, when it is paid on the 18th of November.
Clover's upcoming dividend is AU$0.025 a share, following on from the last 12 months, when the company distributed a total of AU$0.025 per share to shareholders. Based on the last year's worth of payments, Clover stock has a trailing yield of around 1.4% on the current share price of A$1.735. If you buy this business for its dividend, you should have an idea of whether Clover's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Clover paid out a comfortable 33% of its profit last year. A useful secondary check can be to evaluate whether Clover generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% of its free cash flow in the past year.
It's positive to see that Clover'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.
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. That's why it's comforting to see Clover's earnings have been skyrocketing, up 162% per annum for the past five years. Clover is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Clover has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is Clover an attractive dividend stock, or better left on the shelf? Clover has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 1 warning sign for Clover you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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