Is It Smart To Buy Computer Direct Group Ltd. (TLV:CMDR) Before It Goes Ex-Dividend?

Computer Direct Group Ltd. (TLV:CMDR) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Computer Direct Group's shares before the 3rd of September to receive the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be ₪4.30 per share, on the back of last year when the company paid a total of ₪17.40 to shareholders. Calculating the last year's worth of payments shows that Computer Direct Group has a trailing yield of 5.3% on the current share price of ₪326.40. If you buy this business for its dividend, you should have an idea of whether Computer Direct Group's dividend is reliable and sustainable. So we need to investigate whether Computer Direct Group can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Computer Direct Group paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

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.

See our latest analysis for Computer Direct Group

Click here to see how much of its profit Computer Direct Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Computer Direct Group's earnings per share have risen 18% per annum over the last five years. Computer Direct Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Computer Direct Group has delivered 3.7% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Computer Direct Group is keeping back more of its profits to grow the business.

Final Takeaway

Should investors buy Computer Direct Group for the upcoming dividend? We like Computer Direct Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

So while Computer Direct Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Computer Direct Group you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.