It looks like Cooper Tire & Rubber Company (NYSE:CTB) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 30th of August, you won't be eligible to receive this dividend, when it is paid on the 27th of September.
Cooper Tire & Rubber's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.42 per share. Looking at the last 12 months of distributions, Cooper Tire & Rubber has a trailing yield of approximately 1.8% on its current stock price of $23.54. 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 check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Cooper Tire & Rubber paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Cooper Tire & Rubber generated enough free cash flow to afford its dividend. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Cooper Tire & Rubber's earnings per share have been shrinking at 4.7% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cooper Tire & Rubber's dividend payments are effectively flat on where they were ten years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
To Sum It Up
Has Cooper Tire & Rubber got what it takes to maintain its dividend payments? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. In summary, while it has some positive characteristics, we're not inclined to race out and buy Cooper Tire & Rubber today.
Curious what other investors think of Cooper Tire & Rubber? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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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