FutureFuel (NYSE:FF) Is Paying Out A Dividend Of $0.06

The board of FutureFuel Corp. (NYSE:FF) has announced that it will pay a dividend on the 18th of June, with investors receiving $0.06 per share. This means that the annual payment will be 4.2% of the current stock price, which is in line with the average for the industry.

View our latest analysis for FutureFuel

FutureFuel's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, FutureFuel was paying only paying out a fraction of earnings, but the payment was a massive 223% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Unless the company can turn things around, EPS could fall by 15.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 40%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $0.48, compared to the most recent full-year payment of $0.24. Doing the maths, this is a decline of about 6.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. FutureFuel's earnings per share has shrunk at 16% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

FutureFuel's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for FutureFuel you should be aware of, and 2 of them are a bit concerning. Is FutureFuel not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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