Readers hoping to buy Johnson Outdoors Inc. (NASDAQ:JOUT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 8th of January in order to receive the dividend, which the company will pay on the 23rd of January.
Johnson Outdoors’s next dividend payment will be US$0.17 per share, and in the last 12 months, the company paid a total of US$0.68 per share. Based on the last year’s worth of payments, Johnson Outdoors stock has a trailing yield of around 0.9% on the current share price of $76.57. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Johnson Outdoors paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 19% of its free cash flow in the last year.
It’s positive to see that Johnson Outdoors’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It’s encouraging to see Johnson Outdoors has grown its earnings rapidly, up 40% a year for the past five years. Johnson Outdoors looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, Johnson Outdoors has lifted its dividend by approximately 15% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Has Johnson Outdoors got what it takes to maintain its dividend payments? We love that Johnson Outdoors is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There’s a lot to like about Johnson Outdoors, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Johnson Outdoors? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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 email@example.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.
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