Why It Might Not Make Sense To Buy U.S. Global Investors, Inc. (NASDAQ:GROW) For Its Upcoming Dividend

Readers hoping to buy U.S. Global Investors, Inc. (NASDAQ:GROW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase U.S. Global Investors' shares on or after the 12th of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be US$0.0075 per share, on the back of last year when the company paid a total of US$0.09 to shareholders. Looking at the last 12 months of distributions, U.S. Global Investors has a trailing yield of approximately 4.3% on its current stock price of US$2.1001. 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.

Our free stock report includes 3 warning signs investors should be aware of before investing in U.S. Global Investors. Read for free now.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 244% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

View our latest analysis for U.S. Global Investors

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. U.S. Global Investors's earnings per share have fallen at approximately 20% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. U.S. Global Investors has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. U.S. Global Investors is already paying out 244% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Should investors buy U.S. Global Investors for the upcoming dividend? Earnings per share are in decline and U.S. Global Investors is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in U.S. Global Investors and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that U.S. Global Investors is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.