Kohl's Corporation (NYSE:KSS) Passed Our Checks, And It's About To Pay A US$0.25 Dividend

By
Simply Wall St
Published
December 01, 2021
NYSE:KSS
Source: Shutterstock

Readers hoping to buy Kohl's Corporation (NYSE:KSS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 Kohl's' shares before the 7th of December to receive the dividend, which will be paid on the 22nd of December.

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, Kohl's stock has a trailing yield of around 2.1% on the current share price of $48.33. If you buy this business for its dividend, you should have an idea of whether Kohl's's dividend is reliable and sustainable. So we need to investigate whether Kohl's can afford its dividend, and if the dividend could grow.

View our latest analysis for Kohl's

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. Kohl's has a low and conservative payout ratio of just 12% of its income after tax. 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. Luckily it paid out just 6.7% of its free cash flow last year.

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.

historic-dividend
NYSE:KSS Historic Dividend December 2nd 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Kohl's's earnings per share have risen 13% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Kohl's dividends are largely the same as they were 10 years ago.

The Bottom Line

Has Kohl's got what it takes to maintain its dividend payments? It's great that Kohl's 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. There's a lot to like about Kohl's, and we would prioritise taking a closer look at it.

While it's tempting to invest in Kohl's for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 4 warning signs for Kohl's (1 is concerning!) that you ought to be aware of before buying the shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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