Cactus, Inc. (NYSE:WHD) is about to trade 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 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. Thus, you can purchase Cactus’ shares before the 1st of June in order to receive the dividend, which the company will pay on the 18th of June.
The company’s next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.56 to shareholders. Last year’s total dividend payments show that Cactus has a trailing yield of 0.9% on the current share price of US$60.64. 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 investigate whether Cactus can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Cactus paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
It’s positive to see that Cactus’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.
See our latest analysis for Cactus
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it’s a relief to see Cactus earnings per share are up 7.8% per annum over the last five years. Decent historical earnings per share growth suggests Cactus has been effectively growing value for shareholders. However, it’s now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
