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Should You Buy RCI Hospitality Holdings, Inc. (NASDAQ:RICK) For Its Upcoming Dividend In 3 Days?

Simply Wall St

It looks like RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 9th of December in order to be eligible for this dividend, which will be paid on the 26th of December.

RCI Hospitality Holdings's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Based on the last year's worth of payments, RCI Hospitality Holdings stock has a trailing yield of around 0.9% on the current share price of $18.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for RCI Hospitality Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RCI Hospitality Holdings has a low and conservative payout ratio of just 7.2% of its income after tax. A useful secondary check can be to evaluate whether RCI Hospitality Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that RCI Hospitality Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

NasdaqGM:RICK Historical Dividend Yield, December 5th 2019

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, RCI Hospitality Holdings's earnings per share have been growing at 11% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last four years, RCI Hospitality Holdings has lifted its dividend by approximately 7.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is RCI Hospitality Holdings an attractive dividend stock, or better left on the shelf? We love that RCI Hospitality Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

Curious what other investors think of RCI Hospitality Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.