Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) Looks Interesting, And It's About To Pay A Dividend

It looks like Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Natural Grocers by Vitamin Cottage's shares on or after the 1st of December, you won't be eligible to receive the dividend, when it is paid on the 10th of December.

The company's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Last year's total dividend payments show that Natural Grocers by Vitamin Cottage has a trailing yield of 2.1% on the current share price of US$28.03. 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.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Natural Grocers by Vitamin Cottage has a low and conservative payout ratio of just 24% of its income after tax. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Natural Grocers by Vitamin Cottage'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.

View our latest analysis for Natural Grocers by Vitamin Cottage

Click here to see how much of its profit Natural Grocers by Vitamin Cottage paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Natural Grocers by Vitamin Cottage's earnings per share have been growing at 18% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Natural Grocers by Vitamin Cottage has lifted its dividend by approximately 14% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Natural Grocers by Vitamin Cottage for the upcoming dividend? We love that Natural Grocers by Vitamin Cottage 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. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Natural Grocers by Vitamin Cottage's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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.