Read This Before Considering Landstar System, Inc. (NASDAQ:LSTR) For Its Upcoming US$0.40 Dividend

Landstar System, Inc. (NASDAQ:LSTR) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Landstar System's shares on or after the 19th of August, you won't be eligible to receive the dividend, when it is paid on the 9th of September.

The company's next dividend payment will be US$0.40 per share, and in the last 12 months, the company paid a total of US$3.60 per share. Looking at the last 12 months of distributions, Landstar System has a trailing yield of approximately 2.7% on its current stock price of US$131.07. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Landstar System paying out a modest 31% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Landstar System

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Landstar System's earnings per share have been shrinking at 3.3% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Landstar System has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

From a dividend perspective, should investors buy or avoid Landstar System? Landstar System has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about Landstar System from a dividend perspective.

Wondering what the future holds for Landstar System? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.