CompX International Inc. (NYSEMKT:CIX) Passed Our Checks, And It's About To Pay A US$0.20 Dividend

CompX International Inc. (NYSEMKT:CIX) stock is about to trade ex-dividend in 4 days. This means that investors who purchase shares on or after the 12th of March will not receive the dividend, which will be paid on the 23rd of March.

CompX International's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, CompX International stock has a trailing yield of around 5.4% on the current share price of $14.79. 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 CompX International can afford its dividend, and if the dividend could grow.

Check out our latest analysis for CompX International

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. Fortunately CompX International's payout ratio is modest, at just 48% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that CompX International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit CompX International paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see CompX International earnings per share are up 2.4% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CompX International has delivered an average of 4.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.

To Sum It Up

Should investors buy CompX International for the upcoming dividend? Earnings per share growth has been growing somewhat, and CompX International is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but CompX International is being conservative with its dividend payouts and could still perform reasonably over the long run. CompX International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while CompX International looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - CompX International has 2 warning signs we think you should be aware of.

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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