We Wouldn't Be Too Quick To Buy Chicago Rivet & Machine Co. (NYSEMKT:CVR) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see 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 3rd of December to receive the dividend, which will be paid on the 18th of December.

Chicago Rivet & Machine's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Last year's total dividend payments show that Chicago Rivet & Machine has a trailing yield of 1.9% on the current share price of $21.2435. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Chicago Rivet & Machine

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chicago Rivet & Machine paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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 Chicago Rivet & Machine 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. 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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chicago Rivet & Machine's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

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

To Sum It Up

Is Chicago Rivet & Machine an attractive dividend stock, or better left on the shelf? 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." It's not that we think Chicago Rivet & Machine is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Chicago Rivet & Machine. For example, Chicago Rivet & Machine has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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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