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Crane Co. (NYSE:CR) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 28th of August in order to receive the dividend, which the company will pay on the 9th of September.
Crane's upcoming dividend is US$0.43 a share, following on from the last 12 months, when the company distributed a total of US$1.72 per share to shareholders. Calculating the last year's worth of payments shows that Crane has a trailing yield of 3.0% on the current share price of $56.69. 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.
View our latest analysis for Crane
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. Last year, Crane paid out 259% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. A useful secondary check can be to evaluate whether Crane generated enough free cash flow to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Crane's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Crane's 28% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
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, Crane has lifted its dividend by approximately 8.0% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Crane is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.