Barnes Group Inc. (NYSE:B) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 23rd of August will not receive this dividend, which will be paid on the 10th of September.
Barnes Group's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Calculating the last year's worth of payments shows that Barnes Group has a trailing yield of 1.4% on the current share price of $45.49. If you buy this business for its dividend, you should have an idea of whether Barnes Group's dividend is reliable and sustainable. So we need to investigate whether Barnes Group can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Barnes Group is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Barnes Group generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.
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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Barnes Group's earnings per share have been growing at 17% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Barnes Group's dividend payments are broadly unchanged compared to where they were ten years ago.
From a dividend perspective, should investors buy or avoid Barnes Group? It's great that Barnes Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Barnes Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Barnes Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.