It Might Not Be A Great Idea To Buy U.S. Global Investors, Inc. (NASDAQ:GROW) For Its Next Dividend

U.S. Global Investors, Inc. (NASDAQ:GROW) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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, U.S. Global Investors investors that purchase the stock on or after the 10th of February will not receive the dividend, which will be paid on the 24th of February.

The company's next dividend payment will be US$0.0075 per share, and in the last 12 months, the company paid a total of US$0.09 per share. Based on the last year's worth of payments, U.S. Global Investors has a trailing yield of 3.7% on the current stock price of US$2.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for U.S. Global Investors

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. U.S. Global Investors paid out 69% of its earnings to investors last year, a normal payout level for most businesses.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit U.S. Global Investors paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by U.S. Global Investors's 7.4% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, U.S. Global Investors has increased its dividend at approximately 4.1% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is U.S. Global Investors worth buying for its dividend? We're not overly enthused to see U.S. Global Investors's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. U.S. Global Investors doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of U.S. Global Investors don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for U.S. Global Investors that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.