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What To Know Before Buying Commercial Metals Company (NYSE:CMC) For Its Dividend

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Commercial Metals Company (NYSE:CMC) has paid dividends to shareholders, and these days it yields 3.0%. Does Commercial Metals tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Commercial Metals

5 questions I ask before picking a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

  • Does it pay an annual yield higher than 75% of dividend payers?

  • Does it consistently pay out dividends without missing a payment of significantly cutting payout?

  • Has it increased its dividend per share amount over the past?

  • Does earnings amply cover its dividend payments?

  • Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

NYSE:CMC Historical Dividend Yield January 9th 19
NYSE:CMC Historical Dividend Yield January 9th 19

Does Commercial Metals pass our checks?

The current trailing twelve-month payout ratio for the stock is 41%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 20% which, assuming the share price stays the same, leads to a dividend yield of around 3.0%. However, EPS should increase to $2.09, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. CMC investors will be well aware the dividend payments are lower today than they were 10 years ago, although the payments have at least been steady. However, income investors that value stability over growth may still find CMC appealing.

Relative to peers, Commercial Metals generates a yield of 3.0%, which is high for Metals and Mining stocks but still below the market’s top dividend payers.

Next Steps:

With this in mind, I definitely rank Commercial Metals as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential factors you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for CMC’s future growth? Take a look at our free research report of analyst consensus for CMC’s outlook.

  2. Valuation: What is CMC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CMC is currently mispriced by the market.

  3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.