Should Income Investors Look At Crown Crafts, Inc. (NASDAQ:CRWS) Before Its Ex-Dividend?

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 4 days. Investors can purchase shares before the 12th of December in order to be eligible for this dividend, which will be paid on the 3rd of January.

Crown Crafts’s upcoming dividend is US$0.33 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Based on the last year’s worth of payments, Crown Crafts has a trailing yield of 4.7% on the current stock price of $6.76. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Crown Crafts has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Crown Crafts

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. Crown Crafts paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Crown Crafts generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

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.

Click here to see how much of its profit Crown Crafts paid out over the last 12 months.

NasdaqCM:CRWS Historical Dividend Yield, December 7th 2019
NasdaqCM:CRWS Historical Dividend Yield, December 7th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we’re not overly excited about Crown Crafts’s flat earnings over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Crown Crafts has lifted its dividend by approximately 15% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Crown Crafts? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Crown Crafts doesn’t stand out from a dividend perspective. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Curious about whether Crown Crafts has been able to consistently generate growth? Here’s a chart of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.