Stock Analysis

Don't Buy Flexsteel Industries, Inc. (NASDAQ:FLXS) For Its Next Dividend Without Doing These Checks

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NasdaqGS:FLXS
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It looks like Flexsteel Industries, Inc. (NASDAQ:FLXS) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of December will not receive this dividend, which will be paid on the 4th of January.

Flexsteel Industries's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.20 to shareholders. Looking at the last 12 months of distributions, Flexsteel Industries has a trailing yield of approximately 1.2% on its current stock price of $34.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Flexsteel Industries can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Flexsteel Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Flexsteel Industries reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. Fortunately, it paid out only 36% of its free cash flow in the past year.

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

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NasdaqGS:FLXS Historic Dividend December 17th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Flexsteel 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. Since the start of our data, 10 years ago, Flexsteel Industries has lifted its dividend by approximately 7.2% a year on average.

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

Final Takeaway

Has Flexsteel Industries 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." Bottom line: Flexsteel Industries has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Flexsteel Industries despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for Flexsteel Industries (1 is a bit concerning!) that deserve your attention before investing in the shares.

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.

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