Don't Buy Comerica Incorporated (NYSE:CMA) For Its Next Dividend Without Doing These Checks

It looks like Comerica Incorporated (NYSE:CMA) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Comerica's shares before the 14th of June to receive the dividend, which will be paid on the 1st of July.

The company's next dividend payment will be US$0.71 per share. Last year, in total, the company distributed US$2.84 to shareholders. Based on the last year's worth of payments, Comerica stock has a trailing yield of around 5.9% on the current share price of US$48.05. 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! So we need to investigate whether Comerica can afford its dividend, and if the dividend could grow.

See our latest analysis for Comerica

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. Comerica paid out 56% of its earnings to investors last year, a normal payout level for most businesses.

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.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Comerica's earnings per share have dropped 7.2% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Comerica has delivered 15% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Has Comerica got what it takes to maintain its dividend payments? We're not overly enthused to see Comerica's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Although, if you're still interested in Comerica and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 2 warning signs with Comerica and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.