The board of C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has announced that it will pay a dividend on the 1st of October, with investors receiving US$0.51 per share. This makes the dividend yield 2.3%, which will augment investor returns quite nicely.
C.H. Robinson Worldwide's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, C.H. Robinson Worldwide's dividend was only 42% of earnings, however it was paying out 983% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Looking forward, earnings per share is forecast to rise by 10.4% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.
C.H. Robinson Worldwide Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the dividend has gone from US$1.00 to US$2.04. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Has Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. C.H. Robinson Worldwide has seen EPS rising for the last five years, at 5.6% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about C.H. Robinson Worldwide's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for C.H. Robinson Worldwide (of which 3 are concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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