Cohen & Steers' Dividend X-ray

Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a given company to understand the quality of its dividend and how that's changed over the past five years.

The company we're looking at today is Cohen & Steers (NYS: CNS) , which has a 12-month trailing yield of 6.3%.

Cohen & Steers is an asset manager. Like competitors Federated Investors (NYS: FII) and Legg Mason (NYS: LM) , Cohen & Steers benefited in the first half of the year from the rising market; however, the stock has erased all its gains as the market fell below where it started the year.

Cohen & Steers Total Return Price Chart

Cohen & Steers Total Return Price Chart by YCharts

To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years, and, if so, how much it has grown.

Cohen & Steers Dividend Chart

Cohen & Steers Dividend Chart by YCharts

Cohen & Steers has paid a dividend since 2007, but it certainly has been volatile, with a recent substantial special dividend.

Immediate safety
To understand how safe a dividend is, we use three crucial tools, the first of which is:

  • The interest coverage ratio, or the number of times interest is earned, which is calculated by earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. A ratio less than 1.5 is questionable; a number less than 1 means the company is not bringing in enough money to cover its interest expenses.

Cohen & Steers has no debt and as such has no interest to cover.

The other tools we use to evaluate the safety of a dividend are:

  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business's health. The FCF payout ratio measures the percent of free cash flow devoted toward paying the dividend. Again, a ratio greater than 80% could be a red flag.

Source: S&P Capital IQ. Excludes special dividend of $1 paid in Sept. 2011.

Cohen & Steers' payout ratio has been all over the place, though in the past year it's leveled out right below 50%.

Another tool for better investing
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At the time this article was published

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