DICK’S Sporting Goods (NYSE: DKS) pays bigger dividend than last year

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DICK’S Sporting Goods, Inc. (NYSE: DKS) announced that it will increase its dividend on September 24 to US $ 5.94. This makes the dividend yield of 5.0%, which is above the industry average.

While dividend yield is important for income investors, it is also important to take into account any significant change in the price of the shares, as this will generally outweigh any gains from distributions. Investors will be delighted to see that the DICK’S Sporting Goods share price has risen by 42% in the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.

DICK’s sporting goods payment has strong revenue coverage

We like to see robust dividend yields, but it doesn’t matter if the payout isn’t sustainable. Before making this announcement, DICK’S Sporting Goods was easily earning enough to cover the dividend. This means that most of its profits are kept to grow the business.

Looking ahead, earnings per share are expected to drop 27.5% over the next year. Assuming the dividend continues according to recent trends, we think the payout ratio could reach 76% which is definitely higher.

Historic NYSE dividend: DKS August 28, 2021

Dividend volatility

Although the company has a long history of dividends, it has been cut at least once in the past 10 years. Since 2011, the first annual payment was US $ 0.50, compared to the most recent annual payment of US $ 1.75. This works out to a compound annual growth rate (CAGR) of around 13% per year over that time period. Dividends have grown rapidly during this time, but with reductions in the past, we are not sure this stock will be a reliable source of income in the future.

The dividend seems likely to increase

With a relatively volatile dividend, it is even more important to see if earnings per share increase. We are encouraged to see that DICK’S Sporting Goods has increased its earnings per share by 39% per year over the past five years. Profits grew rapidly and, with a low payout ratio, we think the company could turn out to be a great dividend stock.

DICK’S Sporting Goods Looks Like Great Dividend Stock

Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. Profits easily cover the company’s distributions and the business generates a lot of cash. If earnings decline over the next 12 months, the dividend could be shaken slightly, but we don’t think that should be too much of a problem in the long run. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.

Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. Concrete example: we have spotted 2 warning signs for DICK’S sporting goods (1 of which is potentially serious!) that you should be aware of. We have also set up a list of global stocks with a solid dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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