Cambridge Bancorp (NASDAQ:CATC) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 5th of May will not receive this dividend, which will be paid on the 20th of May.
Cambridge Bancorp's next dividend payment will be US$0.61 per share, and in the last 12 months, the company paid a total of US$2.20 per share. Looking at the last 12 months of distributions, Cambridge Bancorp has a trailing yield of approximately 2.5% on its current stock price of $87.22. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cambridge Bancorp paid out a comfortable 37% of its profit last year.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Cambridge Bancorp, with earnings per share up 7.7% on average over the last five years.
We'd also point out that Cambridge Bancorp issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cambridge Bancorp has delivered 4.6% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Cambridge Bancorp? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Cambridge Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Cambridge Bancorp and you should be aware of it before buying any shares.
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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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