Yahoo Finance Snap-on Incorporated (NYSE:SNA) Looks Interesting, And It's About To Pay A Dividend
Snap-on Incorporated (NYSE:SNA) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Snap-on investors that purchase the stock on or after the 18th of November will not receive the dividend, which will be paid on the 9th of December.
The company's next dividend payment will be US$1.62 per share. Last year, in total, the company distributed US$6.48 to shareholders. Based on the last year's worth of payments, Snap-on has a trailing yield of 2.8% on the current stock price of $234.31. If you buy this business for its dividend, you should have an idea of whether Snap-on's dividend is reliable and sustainable. As a result, readers should always check whether Snap-on has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Snap-on
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. Snap-on paid out a comfortable 34% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Snap-on'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?
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. For this reason, we're glad to see Snap-on's earnings per share have risen 12% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. 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. Since the start of our data, 10 years ago, Snap-on has lifted its dividend by approximately 17% 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.
Final Takeaway
Has Snap-on got what it takes to maintain its dividend payments? We love that Snap-on 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. Overall we think this is an attractive combination and worthy of further research.
So while Snap-on looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Snap-on and you should be aware of it before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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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