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Is It Smart To Buy Shutterstock, Inc. (NYSE:SSTK) Before It Goes Ex-Dividend?

Readers hoping to buy Shutterstock, Inc. (NYSE:SSTK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 2nd of September in order to receive the dividend, which the company will pay on the 17th of September.

Shutterstock's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Based on the last year's worth of payments, Shutterstock has a trailing yield of 1.4% on the current stock price of $48.29. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Shutterstock

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Shutterstock's payout ratio is modest, at just 37% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Shutterstock, with earnings per share up 8.0% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Unfortunately Shutterstock has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

From a dividend perspective, should investors buy or avoid Shutterstock? Earnings per share have been growing moderately, and Shutterstock is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Shutterstock is halfway there. Overall we think this is an attractive combination and worthy of further research.

So while Shutterstock looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for Shutterstock and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

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