Should You Buy LSI Industries Inc. (NASDAQ:LYTS) For Its Upcoming Dividend?

LSI Industries Inc. (NASDAQ:LYTS) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase LSI Industries' shares before the 26th of August in order to receive the dividend, which the company will pay on the 3rd of September.

The company's next dividend payment will be US$0.05 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Based on the last year's worth of payments, LSI Industries has a trailing yield of 1.4% on the current stock price of US$14.64. If you buy this business for its dividend, you should have an idea of whether LSI Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for LSI Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. LSI Industries is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see LSI Industries has grown its earnings rapidly, up 47% a year for the past five years. LSI Industries looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. LSI Industries has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Should investors buy LSI Industries for the upcoming dividend? Companies like LSI Industries that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating LSI Industries more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for LSI Industries that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.