Stock Analysis

Sturm, Ruger & Company, Inc. (NYSE:RGR) Passed Our Checks, And It's About To Pay A US$0.71 Dividend

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NYSE:RGR
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It looks like Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to go ex-dividend in the next four days. You will need to purchase shares before the 11th of March to receive the dividend, which will be paid on the 26th of March.

Sturm Ruger's upcoming dividend is US$0.71 a share, following on from the last 12 months, when the company distributed a total of US$2.04 per share to shareholders. Based on the last year's worth of payments, Sturm Ruger has a trailing yield of 3.1% on the current stock price of $66.21. If you buy this business for its dividend, you should have an idea of whether Sturm Ruger's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Sturm Ruger

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Sturm Ruger's payout ratio is modest, at just 39% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 29% of its free cash flow in the past year.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:RGR Historic Dividend March 6th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Sturm Ruger, with earnings per share up 9.2% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sturm Ruger has delivered 20% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Sturm Ruger an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Sturm Ruger is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Sturm Ruger is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for Sturm Ruger (1 doesn't sit too well with us) you should be aware of.

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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What are the risks and opportunities for Sturm Ruger?

Sturm, Ruger & Company, Inc., together with its subsidiaries, designs, manufactures, and sells firearms under the Ruger name and trademark in the United States.

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Rewards

  • Price-To-Earnings ratio (9.2x) is below the US market (15.1x)

Risks

No risks detected for RGR from our risks checks.

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