Don’t buy Cabot Corporation (NYSE: CBT) for its next dividend without doing these checks
Cabot Company The stock (NYSE: CBT) is about to trade off-dividend in three days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the registration date. So you can buy the Cabot shares before August 26 in order to receive the dividend that the company pays on September 10.
The company’s next dividend payment will be US $ 0.35 per share, and over the past 12 months the company has paid a total of US $ 1.40 per share. Last year’s total dividend payouts show Cabot is yielding 2.7% on the current share price of $ 52.13. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest review for Cabot
Dividends are usually paid out of the company’s profits, so if a company pays more than it earned, its dividend is usually at risk of being reduced. Cabot reported an after-tax loss last year, which means it pays a dividend despite being unprofitable. Although this may be a one-time event, it is unlikely to be sustainable in the long term. Given the lack of profitability, we also need to check whether the company has generated enough cash to cover the dividend payment. If Cabot did not generate enough cash to pay the dividend, then it had to either pay cash in the bank or borrow money, which is not sustainable in the long run. In the past year, it has paid over three-quarters (78%) of its generated free cash flow, which is quite high and could start to limit reinvestment in the business.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with declining profits are riskier for dividend shareholders. If profits fall enough, the company could be forced to cut its dividend. Cabot reported a loss last year, and the general trend suggests that its profits have also declined in recent years, which makes us wonder if the dividend is in jeopardy.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, Cabot has increased its dividend by approximately 6.9% per year on average.
Remember, you can still get an overview of Cabot’s financial health, by checking out our visualization of their financial health, here.
To summarize
Should investors buy Cabot for the next dividend? We are a little uncomfortable paying a dividend while being in deficit. However, we note that the dividend was covered by cash flow. Overall, this doesn’t seem like the most suitable dividend-paying stock for a long-term buy and hold investor.
However, if you are still interested in Cabot and want to learn more, then knowing the risks that this stock faces will be very helpful. Our analysis shows 2 warning signs for Cabot and you must know them before you buy stocks.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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