Dividend paying stocks like Carolina Financial Corporation (NASDAQ:CARO) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
Investors might not know much about Carolina Financial's dividend prospects, even though it has been paying dividends for the last six years and offers a 1.0% yield. While the yield may not look too great, the relatively long payment history is interesting. The company also bought back stock during the year, equivalent to approximately 1.3% of the company's market capitalisation at the time. Some simple analysis can reduce the risk of holding Carolina Financial for its dividend, and we'll focus on the most important aspects below.
Click the interactive chart for our full dividend analysis
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 12% of Carolina Financial's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.
Remember, you can always get a snapshot of Carolina Financial's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that Carolina Financial has been paying a dividend for the past six years. Its dividend has not fluctuated much that time, which we like, but we're conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past six-year period, the first annual payment was US$0.083 in 2013, compared to US$0.36 last year. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time.
The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.