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Readers hoping to buy Quanex Building Products Corporation (NYSE:NX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 13th of June will not receive the dividend, which will be paid on the 28th of June.
Quanex Building Products’s upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Calculating the last year’s worth of payments shows that Quanex Building Products has a trailing yield of 1.9% on the current share price of $16.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
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. Quanex Building Products reported a loss last year, so it’s not great to see that it has continued paying a dividend. There might be mitigating circumstances, but we would look into this before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Quanex Building Products didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 12% of its free cash flow in the last year.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Quanex Building Products reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Quanex Building Products has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
From a dividend perspective, should investors buy or avoid Quanex Building Products? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. To summarise, Quanex Building Products looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Curious what other investors think of Quanex Building Products? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.