It looks like E*TRADE Financial Corporation (NASDAQ:ETFC) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of February will not receive this dividend, which will be paid on the 2nd of March.
E*TRADE Financial’s next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.56 to shareholders. Based on the last year’s worth of payments, E*TRADE Financial has a trailing yield of 1.3% on the current stock price of $43.79. If you buy this business for its dividend, you should have an idea of whether E*TRADE Financial’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. E*TRADE Financial is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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. That’s why it’s comforting to see E*TRADE Financial’s earnings have been skyrocketing, up 31% per annum for the past five years.
Unfortunately E*TRADE Financial has only been paying a dividend for a year or so, so there’s not much of a history to draw insight from.
To Sum It Up
Is E*TRADE Financial an attractive dividend stock, or better left on the shelf? Companies like E*TRADE Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. E*TRADE Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
Curious what other investors think of E*TRADE Financial? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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