Yahoo Finance Is It Smart To Buy Ross Stores, Inc. (NASDAQ:ROST) Before It Goes Ex-Dividend?
Ross Stores, Inc. (NASDAQ:ROST) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 11th of September in order to be eligible for this dividend, which will be paid on the 30th of September.
Ross Stores's next dividend payment will be US$0.26 per share, on the back of last year when the company paid a total of US$1.02 to shareholders. Based on the last year's worth of payments, Ross Stores has a trailing yield of 0.9% on the current stock price of $109.36. If you buy this business for its dividend, you should have an idea of whether Ross Stores's dividend is reliable and sustainable. So we need to investigate whether Ross Stores can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Ross Stores
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Ross Stores has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 21% of its free cash flow in the last year.
It's positive to see that Ross Stores'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Ross Stores's earnings per share have been growing at 18% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ross Stores has delivered an average of 27% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is Ross Stores an attractive dividend stock, or better left on the shelf? Ross Stores has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
Wondering what the future holds for Ross Stores? See what the 23 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.