The board of Carter's, Inc. (NYSE:CRI) has announced it will be reducing its dividend by 69% from last year's payment of $0.80 on the 20th of June, with shareholders receiving $0.25. This means the annual payment is 9.9% of the current stock price, which is above the average for the industry.
Estimates Indicate Carter's' Could Struggle to Maintain Dividend Payments In The Future
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Carter's' dividend made up quite a large proportion of earnings but only 53% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Looking forward, earnings per share is forecast to fall by 54.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 150%, which could put the dividend in jeopardy if the company's earnings don't improve.
View our latest analysis for Carter's
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.76 in 2015, and the most recent fiscal year payment was $3.20. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
We Could See Carter's' Dividend Growing
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Carter's has seen EPS rising for the last five years, at 5.4% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
Our Thoughts On Carter's' Dividend
Overall, we think that Carter's could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Carter's has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.