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Choice Hotels International, Inc. (NYSE:CHH) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 1st of October will not receive this dividend, which will be paid on the 17th of October.
Choice Hotels International's next dividend payment will be US$0.2 per share, on the back of last year when the company paid a total of US$0.9 to shareholders. Based on the last year's worth of payments, Choice Hotels International stock has a trailing yield of around 1.0% on the current share price of $89.13. If you buy this business for its dividend, you should have an idea of whether Choice Hotels International's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Choice Hotels International
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Choice Hotels International is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's positive to see that Choice Hotels International'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Choice Hotels International's earnings per share have been growing at 15% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.