We Wouldn't Be Too Quick To Buy Friedman Industries, Incorporated (NYSEMKT:FRD) Before It Goes Ex-Dividend

Friedman Industries, Incorporated (NYSEMKT:FRD) is about to trade ex-dividend in the next three days. You can purchase shares before the 7th of January in order to receive the dividend, which the company will pay on the 5th of February.

Friedman Industries's next dividend payment will be US$0.02 per share, and in the last 12 months, the company paid a total of US$0.08 per share. Looking at the last 12 months of distributions, Friedman Industries has a trailing yield of approximately 1.2% on its current stock price of $6.86. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Friedman Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Friedman Industries reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Friedman Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.

Click here to see how much of its profit Friedman Industries 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Friedman Industries reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Friedman Industries has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of Friedman Industries's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Friedman Industries? It's hard to get used to Friedman Industries paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Friedman Industries as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 2 warning signs with Friedman Industries (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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