Why It Might Not Make Sense To Buy Bassett Furniture Industries, Incorporated (NASDAQ:BSET) For Its Upcoming Dividend

By
Simply Wall St
Published
February 06, 2021
NasdaqGS:BSET

Bassett Furniture Industries, Incorporated (NASDAQ:BSET) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 11th of February, you won't be eligible to receive this dividend, when it is paid on the 26th of February.

Bassett Furniture Industries's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.50 to shareholders. Calculating the last year's worth of payments shows that Bassett Furniture Industries has a trailing yield of 2.2% on the current share price of $22.42. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Bassett Furniture Industries

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bassett Furniture Industries lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Bassett Furniture Industries 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 15% of its free cash flow as dividends last year, which is conservatively low.

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

historic-dividend
NasdaqGS:BSET Historic Dividend February 6th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Bassett Furniture Industries 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. Bassett Furniture Industries has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of Bassett Furniture Industries's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Bassett Furniture Industries for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Bassett Furniture Industries is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Bassett Furniture Industries as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Bassett Furniture Industries and you should be aware of these before buying any shares.

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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