Yahoo Finance Here's What We Like About Graco Inc. (NYSE:GGG)'s Upcoming Dividend
Graco Inc. (NYSE:GGG) is about to trade ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 17th of January will not receive the dividend, which will be paid on the 5th of February.
Graco's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.64 per share to shareholders. Calculating the last year's worth of payments shows that Graco has a trailing yield of 1.3% on the current share price of $53.21. 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.
Check out our latest analysis for Graco
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Graco paying out a modest 32% of its earnings. 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. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Graco'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Graco's earnings per share have been growing at 12% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Graco has delivered 11% dividend growth per year on average over the past ten years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Graco an attractive dividend stock, or better left on the shelf? We love that Graco is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Graco looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Graco? See what the nine 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 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.
