Readers hoping to buy Dover Corporation (NYSE:DOV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Therefore, if you purchase Dover’s shares on or after the 29th of November, you won’t be eligible to receive the dividend, when it is paid on the 15th of December.
The company’s next dividend payment will be US$0.51 per share, and in the last 12 months, the company paid a total of US$2.02 per share. Based on the last year’s worth of payments, Dover has a trailing yield of 1.4% on the current stock price of $142.76. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. Dover has a low and conservative payout ratio of just 25% of its income after tax. A useful secondary check can be to evaluate whether Dover generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Dover’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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see Dover’s earnings have been skyrocketing, up 21% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Dover has delivered 4.8% dividend growth per year on average over the past 10 years. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Has Dover got what it takes to maintain its dividend payments? Dover 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. It’s a promising combination that should mark this company worthy of closer attention.
In light of that, while Dover has an appealing dividend, it’s worth knowing the risks involved with this stock. To help with this, we’ve discovered 2 warning signs for Dover that you should be aware of before investing in their shares.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Valuation is complex, but we’re helping make it simple.
Find out whether Dover is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives,…