It Might Not Be A Great Idea To Buy Worthington Enterprises, Inc. (NYSE:WOR) For Its Next Dividend

It looks like Worthington Enterprises, Inc. (NYSE:WOR) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Worthington Enterprises investors that purchase the stock on or after the 13th of December will not receive the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.96 to shareholders. Based on the last year's worth of payments, Worthington Enterprises has a trailing yield of 2.4% on the current stock price of US$40.83. If you buy this business for its dividend, you should have an idea of whether Worthington Enterprises's dividend is reliable and sustainable. As a result, readers should always check whether Worthington Enterprises has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Worthington Enterprises

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Worthington Enterprises distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Worthington Enterprises 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 24% of its cash flow last year.

It's good to see that while Worthington Enterprises's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Worthington Enterprises's earnings per share have fallen at approximately 27% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Worthington Enterprises has lifted its dividend by approximately 4.8% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Worthington Enterprises is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Worthington Enterprises worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 139% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Worthington Enterprises's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Worthington Enterprises.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Worthington Enterprises. For example, we've found 3 warning signs for Worthington Enterprises that we recommend you consider before investing in the business.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.