Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Knoll, Inc. (NYSE:KNL) is about to go ex-dividend in just four days. Ex-dividend means that investors that purchase the stock on or after the 12th of March will not receive this dividend, which will be paid on the 31st of March.
Knoll's next dividend payment will be US$0.06 per share, and in the last 12 months, the company paid a total of US$0.24 per share. Last year's total dividend payments show that Knoll has a trailing yield of 1.4% on the current share price of $17.38. If you buy this business for its dividend, you should have an idea of whether Knoll's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Knoll
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. Last year, Knoll paid out 368% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. A useful secondary check can be to evaluate whether Knoll generated enough free cash flow to afford its dividend. It paid out 97% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
As Knoll's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Knoll's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 42% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Knoll has delivered 12% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Knoll is already paying out 368% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Is Knoll an attractive dividend stock, or better left on the shelf? Not only are earnings per share declining, but Knoll is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
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 Knoll. Our analysis shows 4 warning signs for Knoll that we strongly recommend you have a look at before investing in the company.
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.
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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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