Rush Enterprises' (NASDAQ:RUSH.A) Shareholders Will Receive A Bigger Dividend Than Last Year

Rush Enterprises, Inc. (NASDAQ:RUSH.A) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of September to $0.19. The payment will take the dividend yield to 1.4%, which is in line with the average for the industry.

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Rush Enterprises' Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Rush Enterprises was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 18.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

See our latest analysis for Rush Enterprises

Rush Enterprises Is Still Building Its Track Record

It is great to see that Rush Enterprises has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from $0.213 total annually to $0.76. This means that it has been growing its distributions at 20% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Rush Enterprises has grown earnings per share at 24% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Rush Enterprises Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Rush Enterprises is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Rush Enterprises that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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