Rush Enterprises (NASDAQ:RUSH.B) Could Be A Buy For Its Upcoming Dividend

Rush Enterprises, Inc. (NASDAQ:RUSH.B) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Rush Enterprises' shares before the 24th of February in order to be eligible for the dividend, which will be paid on the 16th of March.

The company's next dividend payment will be US$0.21 per share, on the back of last year when the company paid a total of US$0.84 to shareholders. Based on the last year's worth of payments, Rush Enterprises has a trailing yield of 1.3% on the current stock price of $62.72. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Rush Enterprises can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Rush Enterprises

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. Rush Enterprises is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Rush Enterprises paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Rush Enterprises's earnings per share have been growing at 20% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Rush Enterprises has delivered 27% dividend growth per year on average over the past four years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Rush Enterprises worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Rush Enterprises looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in Rush Enterprises for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Rush Enterprises and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.