Readers hoping to buy CompX International Inc. (NYSEMKT:CIX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 30th of August in order to be eligible for this dividend, which will be paid on the 10th of September.
CompX International’s upcoming dividend is US$0.07 a share, following on from the last 12 months, when the company distributed a total of US$0.28 per share to shareholders. Calculating the last year’s worth of payments shows that CompX International has a trailing yield of 1.9% on the current share price of $14.68. If you buy this business for its dividend, you should have an idea of whether CompX International’s dividend is reliable and sustainable. 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. CompX International has a low and conservative payout ratio of just 19% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 22% of its free cash flow last year.
It’s positive to see that CompX International’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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s encouraging to see CompX International has grown its earnings rapidly, up 21% a year for the past five years. CompX International looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. CompX International has seen its dividend decline 5.6% per annum on average over the past 10 years, which is not great to see. CompX International is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It’s unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Has CompX International got what it takes to maintain its dividend payments? It’s great that CompX International is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. CompX International looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Want to learn more about CompX International’s dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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