Kogan.com Ltd (ASX:KGN) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 26th of February will not receive this dividend, which will be paid on the 10th of March.
Kogan.com's next dividend payment will be AU$0.075 per share, on the back of last year when the company paid a total of AU$0.14 to shareholders. Calculating the last year's worth of payments shows that Kogan.com has a trailing yield of 2.7% on the current share price of A$5.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Kogan.com'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.
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. It's encouraging to see Kogan.com has grown its earnings rapidly, up 42% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Kogan.com has increased its dividend at approximately 22% 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.
Is Kogan.com an attractive dividend stock, or better left on the shelf? We like Kogan.com's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about Kogan.com, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Kogan.com? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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