Should income investors look to Cato Corporation (NYSE: CATO) before its ex-dividend?
The Caton company The stock (NYSE: CATO) is about to trade excluding dividend in 4 days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the record date. Therefore, if you buy Cato shares on or after December 17, you will not be able to receive the dividend when it is paid on January 3.
The company’s next dividend payment will be US $ 0.17 per share. Last year, in total, the company distributed US $ 0.68 to shareholders. Calculating the value of last year’s payouts shows Cato has a 4.0% return on the current stock price of $ 16.93. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. So we need to determine if Cato can afford his dividend and if the dividend could increase.
Dividends are usually paid out of the company’s profits, so if a company pays more than what it earns, its dividend is usually at risk of being reduced. Cato has a low and conservative payout ratio of just 18% of his after-tax income. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. It paid 8.9% of its free cash flow as dividends last year, which is cautiously low.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to see how much of his profits Cato has paid in the last 12 months.
NYSE: CATO Historical Dividend December 12, 2021
Have Profits and Dividends Increased?
Companies with declining profits are riskier for dividend shareholders. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. With that in mind, we are hampered by Cato’s 7.8% per annum profit decline over the past five years. When earnings per share decline, the maximum amount of dividends that can be paid also decreases.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Cato has seen his dividend fall by 0.8% per annum on average over the past 10 years, which is not great to see.
To sum up
Does Cato have what it takes to maintain his dividend payments? Earnings per share are down significantly, even though at least the company pays a small and conservative percentage of its earnings and cash flow. It’s certainly not great to see profits plummet, but at least there may be some buffer before the dividend has to be cut. To sum up, Cato looks good on this scan, although it doesn’t seem like an exceptional opportunity.
So, while Cato looks good from a dividend standpoint, it’s still worth being aware of the risks involved in this stock. To help you, we have discovered 2 warning signs for Cato (1 cannot be ignored!) Which you should know before buying the stocks.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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