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CRH plc (NYSE:CRH) stock is about to trade ex-dividend in four 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. This means that investors who purchase CRH's shares on or after the 22nd of November will not receive the dividend, which will be paid on the 18th of December.
The company's next dividend payment will be US$0.2625 per share. Last year, in total, the company distributed US$1.40 to shareholders. Based on the last year's worth of payments, CRH stock has a trailing yield of around 1.4% on the current share price of US$98.29. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for CRH
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. CRH paid out a comfortable 42% 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. Over the last year it paid out 69% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see CRH's earnings have been skyrocketing, up 23% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CRH has delivered 5.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because CRH is keeping back more of its profits to grow the business.