Don't Buy Chicago Rivet & Machine Co. (NYSEMKT:CVR) For Its Next Dividend Without Doing These Checks

Chicago Rivet & Machine Co. (NYSEMKT:CVR) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 4th of March to receive the dividend, which will be paid on the 19th of March.

Chicago Rivet & Machine's upcoming dividend is US$0.22 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, Chicago Rivet & Machine stock has a trailing yield of around 3.2% on the current share price of $27.705. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Chicago Rivet & Machine has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Chicago Rivet & Machine

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. Chicago Rivet & Machine reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

Click here to see how much of its profit Chicago Rivet & Machine paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Chicago Rivet & Machine reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Chicago Rivet & Machine has lifted its dividend by approximately 8.2% a year on average.

Remember, you can always get a snapshot of Chicago Rivet & Machine's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Chicago Rivet & Machine for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Bottom line: Chicago Rivet & Machine has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Chicago Rivet & Machine and want to know more, you'll find it very useful to know what risks this stock faces. For example, Chicago Rivet & Machine has 4 warning signs (and 1 which is concerning) we think you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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