Readers hoping to buy Ingersoll-Rand Plc (NYSE:IR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 5th of September will not receive the dividend, which will be paid on the 30th of September.
Ingersoll-Rand’s next dividend payment will be US$0.53 per share. Last year, in total, the company distributed US$2.12 to shareholders. Looking at the last 12 months of distributions, Ingersoll-Rand has a trailing yield of approximately 1.8% on its current stock price of $121.09. If you buy this business for its dividend, you should have an idea of whether Ingersoll-Rand’s dividend is reliable and sustainable. As a result, readers should always check whether Ingersoll-Rand 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. Ingersoll-Rand paid out a comfortable 36% of its profit last year. A useful secondary check can be to evaluate whether Ingersoll-Rand generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Ingersoll-Rand’s earnings have been skyrocketing, up 23% per annum for the past five years. Ingersoll-Rand is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Ingersoll-Rand has increased its dividend at approximately 11% a year on average. 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
Has Ingersoll-Rand got what it takes to maintain its dividend payments? Ingersoll-Rand has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. There’s a lot to like about Ingersoll-Rand, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Ingersoll-Rand? See what the 20 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.