Is Crane Co. (NYSE: CR) a good dividend stock? How can we say that? Dividend-paying companies with increasing earnings can be very profitable in the long term. Unfortunately, it’s common for investors to be drawn to the seemingly attractive yield and lose money when the company has to cut its dividend payments.
A 1.8% return isn’t cause for alarm, but investors likely believe the long payment history suggests Crane has some stamina. The company returned around 1.2% of its market capitalization to shareholders in the form of share buybacks last year. Before buying any stock for dividend, however, there are always two rules to remember by Warren Buffett: 1) Don’t Lose Money, and 2) Remember Rule 1. We’ll be doing some checks below to help you with this .
Explore this interactive diagram for our latest analysis on Crane!
NYSE: CR Historic Dividend April 9, 2021
Dividends are usually paid out of company profits. When a company pays more dividends than it earns, the dividend can no longer be sustainable – hardly an ideal situation. So we need to get an idea of whether a company’s dividend is sustainable relative to net income after tax. Last year, Crane paid 55% of its profits in dividends. This is a pretty normal payout ratio for most companies. It allows a higher dividend to be paid to shareholders, but limits the capital remaining in the business – which can be good or bad.
Another important check is to determine if the free cash flow generated is enough to pay the dividend. Of the free cash flow generated last year, Crane paid out 36% in dividends, suggesting the dividend is affordable. It is positive to see that Crane’s dividend is backed by both earnings and cash flow, as this is generally a sign that the dividend is sustainable and a lower payout ratio usually suggests a greater margin of safety before that Dividend is cut.
We update our data on Crane every 24 hours so you can always get our latest financial health analysis here.
From the standpoint of a high-income investor looking to keep making dividends for years, it doesn’t make much sense to buy a stock if its dividend is cut regularly or if it’s not reliable. For the purposes of this article, we’re only examining the past decade of Crane’s dividend payments. During that period, the dividend was stable, which could mean the business could have relatively consistent profitability. For the past 10 years, the first annual payment in 2011 was $ 0.8, compared to $ 1.7 last year. The dividend per share increased by approx. 8.0% per year during this period.
Companies like this that grow their dividends appropriately can be very valuable over the long term if the rate of growth can be sustained.
Dividend growth potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) increased, as that’s essential to maintaining dividend purchasing power over the long term. Over the past five years, Crane’s EPS appears to have decreased by around 4.7% per year. A decline in earnings per share over several years is not a good sign for dividend investors. Without some improvement, this is not a good sign of the long-term value of a company’s dividend.
In conclusion, the shareholder should always check that Crane’s dividends are affordable, that dividend payments are relatively stable, and that there are good prospects for earnings and dividends to grow. Crane’s payout ratios are in the normal range of the average company, and we think it’s good that cash flow has outpaced reported earnings. Second, earnings per share have actually shrunk, but at least dividends have been relatively stable. While we’re not very bearish, overall we think there are potentially better dividend stocks out there than Crane.
Market movements confirm how high a consistent dividend policy is compared to a more unpredictable one. At the same time, there are other factors our readers should consider before investing capital in any stock. For example, we chose 2 warning signs for cranes that investors should consider.
If you’re a dividend investor, you should also check out our curated list of dividend stocks that deliver over 3% returns.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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