Why It Might Not Make Sense To Buy Guess', Inc. (NYSE:GES) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Guess', Inc. (NYSE:GES) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 15th of December will not receive this dividend, which will be paid on the 4th of January.

Guess''s next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.45 per share. Last year's total dividend payments show that Guess' has a trailing yield of 2.3% on the current share price of $19.24. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Guess' can afford its dividend, and if the dividend could grow.

See our latest analysis for Guess'

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Guess' reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 5.3% of its cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Guess' 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. Guess''s dividend payments per share have declined at 3.5% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Guess' every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Guess' an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Guess' has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Guess' and want to know more, you'll find it very useful to know what risks this stock faces. For example, Guess' has 3 warning signs (and 1 which is significant) we think you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top 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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