Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Columbia Sportswear Company (NASDAQ:COLM) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 9th of March in order to be eligible for this dividend, which will be paid on the 23rd of March.
Columbia Sportswear’s next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Calculating the last year’s worth of payments shows that Columbia Sportswear has a trailing yield of 1.3% on the current share price of $78.13. If you buy this business for its dividend, you should have an idea of whether Columbia Sportswear’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Columbia Sportswear
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Columbia Sportswear is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 40% of its free cash flow in the past year.
It’s positive to see that Columbia Sportswear’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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Columbia Sportswear’s earnings per share have risen 20% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Columbia Sportswear has delivered 13% dividend growth per year on average over the past ten years. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
From a dividend perspective, should investors buy or avoid Columbia Sportswear? Columbia Sportswear has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Columbia Sportswear, and we would prioritise taking a closer look at it.
On that note, you’ll want to research what risks Columbia Sportswear is facing. Case in point: We’ve spotted 1 warning sign for Columbia Sportswear you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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