eBay Inc. (NASDAQ:EBAY) shares will hit their ex-dividend date in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for stockholders to be on the company’s books in order to be eligible to receive dividends. The ex-dividend date is important because all trades in the stock must have settled before the record date to be eligible to receive the dividend. This means that investors who buy eBay stock after August 30th won’t be able to receive the dividend paid on September 13th.
The company’s next dividend will be $0.27 per share, and in the last 12 months the company has paid a total of $1.08 per share. Looking at last year’s total dividends, eBay has a dividend yield of 1.8% on the current share price of $58.88. While it’s nice to see companies paying dividends, it’s also important to make sure that laying golden eggs doesn’t kill them. Therefore, readers should always check whether eBay has managed to grow its dividend or if there is a possibility that the dividend may be cut.
View our latest analysis for eBay
Dividends are typically paid out of company profits, so if a company pays out more than it earned, its dividend is at higher risk of being cut. eBay paid out just 20% of its profits last year, a conservatively low amount that likely leaves plenty of room for surprises. However, cash flow is more important than profits for assessing a dividend, so we need to see if a company generated enough cash to pay its dividend. Thankfully, the company’s dividends accounted for just 35% of the free cash flow it generated, which is a decent payout ratio.
It’s encouraging to see that the dividend is covered by both profits and cash flow, as this generally suggests the dividend is sustainable, as long as earnings don’t fall precipitously.
Click here to see the company’s dividend payout ratio, plus analyst estimates of its future dividends.
Historical Dividend
Are profits and dividends increasing?
Companies with growth prospects are usually the best candidates to pay dividends because it is easier to grow dividends when earnings per share are improving. If business slows and the dividend is cut, the company’s value could fall sharply. It is encouraging to see that eBay’s revenue has grown at 21% per year over the past five years and is growing rapidly. eBay pays out less than half of its earnings and cash flow as dividends, yet at the same time, earnings per share have grown rapidly. Companies with growing earnings and low dividend payout ratios often make the best long-term dividend stocks because a company can grow its earnings and simultaneously pay out a larger percentage of its earnings as dividends, effectively growing its dividend.
Another key way to gauge a company’s dividend prospects is to measure its historical dividend growth rate. eBay has averaged 12% annual dividend growth over the past six years. It’s good to see that both earnings and dividends per share have grown rapidly over the past few years.
Conclusion
Is eBay an attractive dividend stock, or is it better left on the shelf? eBay is attractive because it has grown earnings per share while maintaining a low payout ratio of both its earnings and cash flow. These characteristics suggest that the company is reinvesting in expanding its business, and the conservative payout ratio also means that there is low risk that the dividend will be cut in the future. Overall, we think this is an attractive combination and one that is worth investigating further.
While it can be tempting to invest in eBay solely for the dividends, you should always be mindful of the risks involved, and to help with this, we’ve spotted 4 warning signs for eBay (1 is significant!) that you should be aware of before buying the stock.
Generally speaking, we don’t recommend just buying the first dividend stock you see, so here we present a curated list of interesting stocks with high dividends.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.