Should You Buy Commerce Bancshares, Inc. (NASDAQ:CBSH) For Its Upcoming Dividend?

Commerce Bancshares, Inc. (NASDAQ:CBSH) stock is about to trade ex-dividend in four days. Ex-dividend means that investors that purchase the stock on or after the 8th of March will not receive this dividend, which will be paid on the 24th of March.

Commerce Bancshares's next dividend payment will be US$0.26 per share, on the back of last year when the company paid a total of US$1.03 to shareholders. Looking at the last 12 months of distributions, Commerce Bancshares has a trailing yield of approximately 1.4% on its current stock price of $74.36. If you buy this business for its dividend, you should have an idea of whether Commerce Bancshares'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 Commerce Bancshares

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Commerce Bancshares paid out a comfortable 35% of its profit last year.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're encouraged by the steady growth at Commerce Bancshares, with earnings per share up 7.7% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Commerce Bancshares has lifted its dividend by approximately 6.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Commerce Bancshares an attractive dividend stock, or better left on the shelf? 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. We think this is a pretty attractive combination, and would be interested in investigating Commerce Bancshares more closely.

While it's tempting to invest in Commerce Bancshares for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Commerce Bancshares you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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