Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Crown Crafts, Inc. (NASDAQ:CRWS) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 11th of March in order to be eligible for this dividend, which will be paid on the 2nd of April.
Crown Crafts's next dividend payment will be US$0.08 per share. Last year, in total, the company distributed US$0.57 to shareholders. Calculating the last year's worth of payments shows that Crown Crafts has a trailing yield of 7.3% on the current share price of $7.81. If you buy this business for its dividend, you should have an idea of whether Crown Crafts's dividend is reliable and sustainable. So we need to investigate whether Crown Crafts can afford its dividend, and if the dividend could grow.
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. That's why it's good to see Crown Crafts paying out a modest 33% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 29% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Crown Crafts, with earnings per share up 5.1% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Crown Crafts has increased its dividend at approximately 22% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Crown Crafts got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Crown Crafts is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Crown Crafts is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 3 warning signs we've spotted with Crown Crafts (including 1 which makes us a bit uncomfortable).
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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