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Korn Ferry (NYSE:KFY) is about to trade ex-dividend in the next three days. Investors can purchase shares before the 18th of December in order to be eligible for this dividend, which will be paid on the 15th of January.
Korn Ferry's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, Korn Ferry has a trailing yield of 1.0% on the current stock price of $40.91. 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.
See our latest analysis for Korn Ferry
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. Korn Ferry distributed an unsustainably high 137% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. It paid out 10% of its free cash flow as dividends last year, which is conservatively low.
It's good to see that while Korn Ferry's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Korn Ferry's earnings per share have plummeted approximately 30% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Korn Ferry dividends are largely the same as they were six years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.