Dividend Investors: Don't Be Too Quick To Buy CSL Limited (ASX:CSL) For Its Upcoming Dividend
CSL Limited (ASX:CSL) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase CSL's shares on or after the 9th of September, you won't be eligible to receive the dividend, when it is paid on the 2nd of October.
The company's next dividend payment will be US$1.62 per share. Last year, in total, the company distributed US$2.92 to shareholders. Calculating the last year's worth of payments shows that CSL has a trailing yield of 2.3% on the current share price of AU$175.50. If you buy this business for its dividend, you should have an idea of whether CSL's dividend is reliable and sustainable. As a result, readers should always check whether CSL has been able to grow its dividends, or if the dividend might be cut.
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. CSL's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If CSL didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
See our latest analysis for CSL
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. CSL reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, CSL has lifted its dividend by approximately 8.9% a year on average.
We update our analysis on CSL every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is CSL worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
With that being said, if you're still considering CSL as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for CSL you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.