Yahoo Finance Don't Buy Tapestry, Inc. (NYSE:TPR) For Its Next Dividend Without Doing These Checks
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Tapestry, Inc. (NYSE:TPR) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 5th of March, you won't be eligible to receive this dividend, when it is paid on the 30th of March.
Tapestry's next dividend payment will be US$0.34 per share, and in the last 12 months, the company paid a total of US$1.35 per share. Based on the last year's worth of payments, Tapestry has a trailing yield of 5.8% on the current stock price of $23.45. If you buy this business for its dividend, you should have an idea of whether Tapestry's dividend is reliable and sustainable. As a result, readers should always check whether Tapestry has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Tapestry
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tapestry is paying out an acceptable 66% of its profit, a common payout level among most companies. 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. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Tapestry's earnings per share have dropped 6.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Tapestry has increased its dividend at approximately 16% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
The Bottom Line
From a dividend perspective, should investors buy or avoid Tapestry? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Curious what other investors think of Tapestry? See what analysts 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 editorial-team@simplywallst.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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
