Income Investors Should Know That Douglas Dynamics, Inc. (NYSE:PLOW) Goes Ex-Dividend Soon

Douglas Dynamics, Inc. (NYSE:PLOW) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Douglas Dynamics investors that purchase the stock on or after the 16th of December will not receive the dividend, which will be paid on the 31st of December.

The company's upcoming dividend is US$0.295 a share, following on from the last 12 months, when the company distributed a total of US$1.18 per share to shareholders. Based on the last year's worth of payments, Douglas Dynamics has a trailing yield of 4.6% on the current stock price of US$25.70. If you buy this business for its dividend, you should have an idea of whether Douglas Dynamics's dividend is reliable and sustainable. As a result, readers should always check whether Douglas Dynamics has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Douglas Dynamics

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. Douglas Dynamics paid out a comfortable 50% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 75% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Douglas Dynamics's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Douglas Dynamics earnings per share are up 4.2% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Douglas Dynamics has lifted its dividend by approximately 3.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Douglas Dynamics? Earnings per share growth has been modest, and it's interesting that Douglas Dynamics is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it's hard to get excited about Douglas Dynamics from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Douglas Dynamics (of which 2 are potentially serious!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.