Readers hoping to buy The Charles Schwab Corporation (NYSE:SCHW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 12th of November will not receive this dividend, which will be paid on the 27th of November.
Charles Schwab’s next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Last year’s total dividend payments show that Charles Schwab has a trailing yield of 1.8% on the current share price of $41.13. 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! We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Charles Schwab
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. Fortunately Charles Schwab’s payout ratio is modest, at just 33% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Charles Schwab’s earnings per share have been growing at 18% a year 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. In the last 10 years, Charles Schwab has lifted its dividend by approximately 12% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Charles Schwab an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it’s usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly – this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Charles Schwab more closely.
In light of that, while Charles Schwab has an appealing dividend, it’s worth knowing the risks involved with this stock. Every company has risks, and we’ve spotted 2 warning signs for Charles Schwab you should know about.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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