Why It Might Not Make Sense To Buy Quad/Graphics, Inc. (NYSE:QUAD) For Its Upcoming Dividend

Quad/Graphics, Inc. (NYSE:QUAD) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Quad/Graphics' shares before the 18th of August in order to receive the dividend, which the company will pay on the 5th of September.

The company's upcoming dividend is US$0.075 a share, following on from the last 12 months, when the company distributed a total of US$0.30 per share to shareholders. Calculating the last year's worth of payments shows that Quad/Graphics has a trailing yield of 4.6% on the current share price of US$6.50. If you buy this business for its dividend, you should have an idea of whether Quad/Graphics's dividend is reliable and sustainable. So we need to investigate whether Quad/Graphics can afford its dividend, and if the dividend could grow.

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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. Quad/Graphics 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. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

See our latest analysis for Quad/Graphics

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Quad/Graphics was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Quad/Graphics has seen its dividend decline 13% per annum on average over the past 10 years, which is not great to see.

We update our analysis on Quad/Graphics every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has Quad/Graphics got what it takes to maintain its dividend payments? 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 the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Quad/Graphics and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Quad/Graphics and you should be aware of this before buying any shares.

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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.