Here's What We Like About Costamare's (NYSE:CMRE) Upcoming Dividend

Costamare Inc. (NYSE:CMRE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Costamare's shares on or after the 19th of July, you won't be eligible to receive the dividend, when it is paid on the 6th of August.

The company's next dividend payment will be US$0.115 per share, on the back of last year when the company paid a total of US$0.46 to shareholders. Based on the last year's worth of payments, Costamare has a trailing yield of 3.0% on the current stock price of US$15.18. If you buy this business for its dividend, you should have an idea of whether Costamare's dividend is reliable and sustainable. As a result, readers should always check whether Costamare has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Costamare

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Costamare paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Costamare'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. That's why it's comforting to see Costamare's earnings have been skyrocketing, up 51% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Costamare has seen its dividend decline 8.2% per annum on average over the past 10 years, which is not great to see. Costamare is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

From a dividend perspective, should investors buy or avoid Costamare? Earnings per share have grown at a nice rate in recent times and over the last year, Costamare paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Costamare, and we would prioritise taking a closer look at it.

While it's tempting to invest in Costamare for the dividends alone, you should always be mindful of the risks involved. For example, Costamare has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com