We Wouldn't Be Too Quick To Buy Flexsteel Industries, Inc. (NASDAQ:FLXS) Before It Goes Ex-Dividend

By
Simply Wall St
Published
March 17, 2022
NasdaqGS:FLXS
Source: Shutterstock

Flexsteel Industries, Inc. (NASDAQ:FLXS) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Flexsteel Industries' shares on or after the 22nd of March, you won't be eligible to receive the dividend, when it is paid on the 4th of April.

The company's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Last year's total dividend payments show that Flexsteel Industries has a trailing yield of 2.9% on the current share price of $20.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Flexsteel Industries has been able to grow its dividends, or if the dividend might be cut.

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 is paying out an acceptable 55% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Flexsteel Industries paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

historic-dividend
NasdaqGS:FLXS Historic Dividend March 17th 2022

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Flexsteel Industries's 16% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Flexsteel Industries has increased its dividend at approximately 7.2% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Should investors buy Flexsteel Industries for the upcoming dividend? Flexsteel Industries had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Flexsteel Industries and want to know more, you'll find it very useful to know what risks this stock faces. For example, Flexsteel Industries has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.