Shareholders Are Loving Johnson Outdoors Inc.’s (NASDAQ:JOUT) 0.8% Yield

Could Johnson Outdoors Inc. (NASDAQ:JOUT) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.

A 0.8% yield is nothing to get excited about, but investors probably think the long payment history suggests Johnson Outdoors has some staying power. Some simple research can reduce the risk of buying Johnson Outdoors for its dividend – read on to learn more.

Explore this interactive chart for our latest analysis on Johnson Outdoors!

NasdaqGS:JOUT Historical Dividend Yield, July 28th 2019
NasdaqGS:JOUT Historical Dividend Yield, July 28th 2019

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, Johnson Outdoors paid out 12% of its profit as dividends. We’d say its dividends are thoroughly covered by earnings.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Johnson Outdoors paid out 21% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. 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.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Johnson Outdoors has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut by more than 20% on at least one occasion historically. During the past ten-year period, the first annual payment was US$0.22 in 2009, compared to US$0.56 last year. Dividends per share have grown at approximately 9.8% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we’re not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s good to see Johnson Outdoors has been growing its earnings per share at 17% a year over the past 5 years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Conclusion

Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Johnson Outdoors has low and conservative payout ratios. Second, earnings per share have been essentially flat, and its history of dividend payments is chequered – having cut its dividend at least once in the past. All things considered, Johnson Outdoors looks like a strong prospect. At the right valuation, it could be something special.

Now, if you want to look closer, it would be worth checking out our free research on Johnson Outdoors management tenure, salary, and performance.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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.

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. Thank you for reading.