Kontoor Brands, Inc. (NYSE:KTB) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Kontoor Brands, Inc. (NYSE:KTB) is about to go ex-dividend in the next 2 days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase Kontoor Brands' shares before the 10th of March in order to be eligible for the dividend, which will be paid on the 20th of March.

The company's next dividend payment will be US$0.52 per share, on the back of last year when the company paid a total of US$2.08 to shareholders. Based on the last year's worth of payments, Kontoor Brands stock has a trailing yield of around 3.4% on the current share price of US$61.17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Kontoor Brands

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Kontoor Brands's payout ratio is modest, at just 46% of profit. A useful secondary check can be to evaluate whether Kontoor Brands generated enough free cash flow to afford its dividend. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Kontoor Brands's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kontoor Brands has seen its dividend decline 1.2% per annum on average over the past six years, which is not great to see.

To Sum It Up

Has Kontoor Brands got what it takes to maintain its dividend payments? It's great that Kontoor Brands is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

So while Kontoor Brands looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 2 warning signs with Kontoor Brands and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.