Should You Buy Eagle Materials Inc. (NYSE:EXP) For Its Upcoming Dividend?

By
Simply Wall St
Published
September 11, 2021
NYSE:EXP
Source: Shutterstock

Readers hoping to buy Eagle Materials Inc. (NYSE:EXP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Eagle Materials' shares before the 16th of September to receive the dividend, which will be paid on the 15th of October.

The company's next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Based on the last year's worth of payments, Eagle Materials has a trailing yield of 0.7% on the current stock price of $145.53. If you buy this business for its dividend, you should have an idea of whether Eagle Materials's dividend is reliable and sustainable. So we need to investigate whether Eagle Materials can afford its dividend, and if the dividend could grow.

View our latest analysis for Eagle Materials

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. Eagle Materials paid out just 3.1% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Eagle Materials generated enough free cash flow to afford its dividend.

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

historic-dividend
NYSE:EXP Historic Dividend September 12th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Eagle Materials has grown its earnings rapidly, up 21% a year for the past five years. Eagle Materials looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Eagle Materials has lifted its dividend by approximately 9.6% a year on average. 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.

Final Takeaway

Has Eagle Materials got what it takes to maintain its dividend payments? It's great that Eagle Materials 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. Eagle Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Eagle Materials and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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