Should You Buy The Charles Schwab Corporation (NYSE:SCHW) For Its Upcoming Dividend?
It looks like The Charles Schwab Corporation (NYSE:SCHW) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Charles Schwab investors that purchase the stock on or after the 13th of November will not receive the dividend, which will be paid on the 27th of November.
The company's next dividend payment will be US$0.32 per share, and in the last 12 months, the company paid a total of US$1.28 per share. Based on the last year's worth of payments, Charles Schwab has a trailing yield of 1.4% on the current stock price of US$92.73. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Charles Schwab paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
View our latest analysis for Charles Schwab
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Charles Schwab has grown its earnings rapidly, up 23% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Charles Schwab has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Charles Schwab an attractive dividend stock, or better left on the shelf? Companies like Charles Schwab that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Charles Schwab ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
While it's tempting to invest in Charles Schwab for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Charles Schwab you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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