CF Industries Holdings, Inc. (NYSE:CF) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 14th of May to receive the dividend, which will be paid on the 29th of May.
CF Industries Holdings’s next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Based on the last year’s worth of payments, CF Industries Holdings stock has a trailing yield of around 4.1% on the current share price of $29.03. If you buy this business for its dividend, you should have an idea of whether CF Industries Holdings’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for CF Industries Holdings
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. CF Industries Holdings paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 24% of its free cash flow last year.
It’s positive to see that CF Industries Holdings’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 the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re discomforted by CF Industries Holdings’s 17% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last ten years, CF Industries Holdings has lifted its dividend by approximately 31% a year on average. 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.
The Bottom Line
Has CF Industries Holdings got what it takes to maintain its dividend payments? We’re not enthused by the declining earnings per share, although at least the company’s payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of CF Industries Holdings’s dividend merits.
If you’re not too concerned about CF Industries Holdings’s ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we’ve spotted 3 warning signs for CF Industries Holdings (of which 1 is concerning!) you should know about.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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