Read This Before Considering Sturm, Ruger & Company, Inc. (NYSE:RGR) For Its Upcoming US$0.18 Dividend

It looks like Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to go ex-dividend in the next 4 days. You can purchase shares before the 12th of March in order to receive the dividend, which the company will pay on the 27th of March.

Sturm Ruger's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Looking at the last 12 months of distributions, Sturm Ruger has a trailing yield of approximately 1.5% on its current stock price of $46.82. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sturm Ruger can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sturm Ruger

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sturm Ruger paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Sturm Ruger generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Sturm Ruger's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Sturm Ruger paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Sturm Ruger's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sturm Ruger has delivered an average of 7.7% per year annual increase in its dividend, based on the past ten years of dividend payments.

The Bottom Line

From a dividend perspective, should investors buy or avoid Sturm Ruger? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. All things considered, we are not particularly enthused about Sturm Ruger from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 1 warning sign with Sturm Ruger and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.