Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Rocky Brands, Inc. (NASDAQ:RCKY) is about to go ex-dividend in just four days. If you purchase the stock on or after the 1st of March, you won't be eligible to receive this dividend, when it is paid on the 16th of March.
Rocky Brands's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.56 to shareholders. Last year's total dividend payments show that Rocky Brands has a trailing yield of 1.6% on the current share price of $34.96. 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 Rocky Brands can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Rocky Brands's payout ratio is modest, at just 25% of profit. A useful secondary check can be to evaluate whether Rocky Brands generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.
It's positive to see that Rocky Brands'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Rocky Brands's earnings per share have risen 11% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Rocky Brands has lifted its dividend by approximately 4.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Rocky Brands is keeping back more of its profits to grow the business.
Is Rocky Brands worth buying for its dividend? Rocky Brands has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Rocky Brands looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for Rocky Brands that we recommend you consider before investing in the business.
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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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