Yahoo Finance FedEx Corporation (NYSE:FDX) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
FedEx Corporation (NYSE:FDX) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase FedEx's shares before the 24th of June in order to be eligible for the dividend, which will be paid on the 9th of July.
The company's next dividend payment will be US$1.38 per share, on the back of last year when the company paid a total of US$5.04 to shareholders. Based on the last year's worth of payments, FedEx has a trailing yield of 2.0% on the current stock price of US$248.09. If you buy this business for its dividend, you should have an idea of whether FedEx's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for FedEx
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately FedEx's payout ratio is modest, at just 29% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that FedEx's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. FedEx has delivered an average of 24% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Is FedEx worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that FedEx is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but FedEx is halfway there. FedEx looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while FedEx has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for FedEx you should be aware of.
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.
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