Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that PACCAR Inc (NASDAQ:PCAR) is about to go ex-dividend in just four days. You can purchase shares before the 8th of February in order to receive the dividend, which the company will pay on the 2nd of March.
PACCAR's upcoming dividend is US$0.32 a share, following on from the last 12 months, when the company distributed a total of US$1.98 per share to shareholders. Looking at the last 12 months of distributions, PACCAR has a trailing yield of approximately 2.2% on its current stock price of $91.89. 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 PACCAR can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. PACCAR paid out a comfortable 34% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 92% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
PACCAR paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were PACCAR to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that PACCAR's earnings are down 3.7% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PACCAR has delivered 19% dividend growth per year on average over the past 10 years.
Has PACCAR got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though PACCAR is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of PACCAR.
With that being said, if you're still considering PACCAR as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for PACCAR that you should be aware of before investing in their shares.
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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