Here's What We Like About CSP's (NASDAQ:CSPI) Upcoming Dividend

CSP Inc. (NASDAQ:CSPI) stock is about to trade ex-dividend in four 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. 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. Accordingly, CSP investors that purchase the stock on or after the 23rd of February will not receive the dividend, which will be paid on the 14th of March.

The company's next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.12 per share. Looking at the last 12 months of distributions, CSP has a trailing yield of approximately 1.0% on its current stock price of $11.79. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for CSP

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. CSP has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether CSP generated enough free cash flow to afford its dividend.

Click here to see how much of its profit CSP paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at CSP, with earnings per share up 2.7% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CSP's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy CSP for the upcoming dividend? CSP has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of CSP's dividend merits.

So if you want to do more digging on CSP, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 3 warning signs for CSP (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.