Here's What We Like About Dillard's' (NYSE:DDS) Upcoming Dividend

Dillard's, Inc. (NYSE:DDS) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Dillard's' shares before the 13th of December to receive the dividend, which will be paid on the 6th of January.

The company's next dividend payment will be US$25.00 per share, on the back of last year when the company paid a total of US$21.00 to shareholders. Looking at the last 12 months of distributions, Dillard's has a trailing yield of approximately 4.7% on its current stock price of US$444.10. 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 Dillard's can afford its dividend, and if the dividend could grow.

See our latest analysis for Dillard's

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Dillard's is paying out just 2.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Dillard's generated enough free cash flow to afford its dividend. Luckily it paid out just 2.5% of its free cash flow last year.

It's positive to see that Dillard's'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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Dillard's has grown its earnings rapidly, up 45% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Dillard's looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Dillard's has increased its dividend at approximately 56% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Dillard's for the upcoming dividend? Dillard's has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Dillard's looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Dillard's is facing. Our analysis shows 1 warning sign for Dillard's and you should be aware of it before buying any shares.

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.