Be Sure To Check Out CDW Corporation (NASDAQ:CDW) Before It Goes Ex-Dividend

Readers hoping to buy CDW Corporation (NASDAQ:CDW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, CDW investors that purchase the stock on or after the 23rd of May will not receive the dividend, which will be paid on the 10th of June.

The company's next dividend payment will be US$0.625 per share, on the back of last year when the company paid a total of US$2.50 to shareholders. Last year's total dividend payments show that CDW has a trailing yield of 1.3% on the current share price of US$188.04. If you buy this business for its dividend, you should have an idea of whether CDW's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've discovered 1 warning sign about CDW. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CDW paid out a comfortable 31% of its profit last year. 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. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that CDW'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.

View our latest analysis for CDW

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

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. Fortunately for readers, CDW's earnings per share have been growing at 10% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, CDW has increased its dividend at approximately 31% 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

Is CDW worth buying for its dividend? We love that CDW is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while CDW has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for CDW that you should be aware of before investing in their 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.