Income Investors Should Know That carsales.com Ltd (ASX:CAR) Goes Ex-Dividend Soon
carsales.com Ltd (ASX:CAR) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 24th of September, you won't be eligible to receive this dividend, when it is paid on the 9th of October.
carsales.com's upcoming dividend is AU$0.3 a share, following on from the last 12 months, when the company distributed a total of AU$0.5 per share to shareholders. Based on the last year's worth of payments, carsales.com stock has a trailing yield of around 2.8% on the current share price of A$16.19. If you buy this business for its dividend, you should have an idea of whether carsales.com's dividend is reliable and sustainable. As a result, readers should always check whether carsales.com has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for carsales.com
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Over the last year, it paid out more than three-quarters (77%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that carsales.com'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 strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see carsales.com earnings per share are up 6.3% per annum over the last five years. Decent historical earnings per share growth suggests carsales.com has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
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, ten years ago, carsales.com has lifted its dividend by approximately 12% 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.
To Sum It Up
Should investors buy carsales.com for the upcoming dividend? Earnings per share have been growing modestly and carsales.com paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about carsales.com from a dividend perspective.
Wondering what the future holds for carsales.com? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
