Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Carlisle’s dividend history and safety…
Business Overview and Highlights
Carlisle Companies Incorporated (NYSE: CSL) designs, manufacturers, and markets a wide range of products that serve niche markets like roofing, agriculture, lawncare, mining, electronics, and healthcare. The $7.9 billion business is based out of Arizona and it employs 13,000 people. Last year Carlisle pulled in $4.5 billion in sales and that works out to $345,000 per employee.
The company runs within the industrial sector and maintains a solid credit rating (BBB) from the S&P. This allows Carlisle to issue cheap debt to grow the business and finance other initiatives.
On May 7, 2019, Carlisle’s board of directors declared a dividend of $0.40 per share. The dividend is payable on June 3 to shareholders of record at the close of business on May 15.
10-Year Dividend History
The company paid investors $0.63 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.54. That’s a 144% increase and you can see the annual changes below…
The compound annual growth is 9.3% over 10 years… but over the last year, the dividend climbed 6.9%. The slowdown in dividend growth isn’t a great sign. Although, Carlisle still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Carlisle’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 1.16% and that’s below the 10-year average of 1.53%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Carlisle earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Carlisle’s payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is down. In 2010 Carlisle reported only $42 million in free cash flow which caused the payout ratio to spike. Fortunately, last year shows a payout ratio of 42.6% with $218 million in free cash flow. This gives wiggle room for Carlisle’s board of directors to raise the dividend.
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