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It looks like Exponent, Inc. (NASDAQ:EXPO) is about to go ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Exponent's shares on or after the 8th of December, you won't be eligible to receive the dividend, when it is paid on the 23rd of December.
The company's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.96 per share to shareholders. Looking at the last 12 months of distributions, Exponent has a trailing yield of approximately 0.9% on its current stock price of $103.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Exponent has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Exponent
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. Exponent paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Exponent generated enough free cash flow to afford its dividend. Fortunately, it paid out only 49% of its free cash flow in the past year.
It's positive to see that Exponent'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?
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Exponent's earnings per share have been growing at 17% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.