UFP Industries, Inc. (NASDAQ:UFPI) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 30th of November to receive the dividend, which will be paid on the 15th of December.
UFP Industries's upcoming dividend is US$0.13 a share, following on from the last 12 months, when the company distributed a total of US$0.50 per share to shareholders. Based on the last year's worth of payments, UFP Industries has a trailing yield of 0.9% on the current stock price of $54.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether UFP Industries has been able to grow its dividends, or if the dividend might be cut.
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. UFP Industries paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.
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.
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. That's why it's comforting to see UFP Industries's earnings have been skyrocketing, up 30% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, UFP Industries looks like a promising growth company.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. UFP Industries has delivered 14% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
From a dividend perspective, should investors buy or avoid UFP Industries? UFP Industries has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. UFP Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while UFP Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with UFP Industries and understanding them should be part of your investment process.
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.
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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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