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It looks like PACCAR Inc (NASDAQ:PCAR) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 PACCAR's shares on or after the 10th of May, you won't be eligible to receive the dividend, when it is paid on the 1st of June.
The company's next dividend payment will be US$0.34 per share. Last year, in total, the company distributed US$2.86 to shareholders. Looking at the last 12 months of distributions, PACCAR has a trailing yield of approximately 3.4% on its current stock price of $85.2. If you buy this business for its dividend, you should have an idea of whether PACCAR'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.
See our latest analysis for PACCAR
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PACCAR paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that PACCAR'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. It's encouraging to see PACCAR has grown its earnings rapidly, up 31% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, PACCAR has lifted its dividend by approximately 15% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.