Be sure to check out CSX Corporation (NASDAQ: CSX) before it goes ex-dividend
CSX Corporation (NASDAQ: CSX) is set to trade ex-dividend within the next 4 days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Thus, you can buy the CSX shares before May 27 in order to receive the dividend, which the company will pay on June 15.
The company’s next dividend payment will be $ 0.28 per share. Last year, in total, the company distributed US $ 1.12 to shareholders. Based on the value of last year’s payouts, CSX has a trailing return of 1.1% on the current share price of $ 98.29. Dividends make a large contribution to investment returns for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
Check out our latest analysis for CSX
If a company pays more in dividends than it has earned, then the dividend can become unsustainable – hardly an ideal situation. Fortunately, CSX’s payout ratio is modest, at only 30% of profits. Still, cash flow is usually more important than profit in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. It distributed 29% of its free cash flow in the form of dividends, a comfortable distribution level for most companies.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t fall precipitously.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with steadily increasing earnings per share are generally the best dividend-paying stocks because they generally find it easier to increase dividends per share. If profits decline and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. For this reason, we are pleased to see that CSX’s earnings per share have grown 12% per year over the past five years. Earnings per share have grown rapidly and the company keeps the majority of its profits with the business. This will make it easier to fund future growth efforts and we think this is an interesting combination – and the dividend can always be increased later.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. CSX has generated dividend growth of 13% per year on average over the past 10 years. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.
Does CSX have what it takes to maintain its dividend payments? CSX has grown its profits at a rapid pace and has a rather low payout ratio, which implies that it is reinvesting heavily in its business; a sterling combination. CSX looks solid on this analysis as a whole, and we would definitely consider taking a closer look.
So while CSX looks good from a dividend standpoint, it is still worth being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for CSX and you need to be aware of this before you buy any stocks.
If you are looking for dividend paying stocks, we recommend that you take a look at our list of top dividend paying stocks with a yield above 2% and a future dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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