Should You Buy Rocky Brands, Inc. (NASDAQ:RCKY) For Its Upcoming Dividend?
Rocky Brands, Inc. (NASDAQ:RCKY) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Rocky Brands' shares before the 1st of March in order to receive the dividend, which the company will pay on the 18th of March.
The company's upcoming dividend is US$0.155 a share, following on from the last 12 months, when the company distributed a total of US$0.62 per share to shareholders. Calculating the last year's worth of payments shows that Rocky Brands has a trailing yield of 2.1% on the current share price of US$29.87. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Rocky Brands
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Rocky Brands's payout ratio is modest, at just 45% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 8.2% of its free cash flow in the last year.
It's positive to see that Rocky Brands'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.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Rocky Brands's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Rocky Brands has lifted its dividend by approximately 4.5% a year on average.
The Bottom Line
Should investors buy Rocky Brands for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Rocky Brands is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Rocky Brands is halfway there. There's a lot to like about Rocky Brands, and we would prioritise taking a closer look at it.
In light of that, while Rocky Brands has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 3 warning signs we've spotted with Rocky Brands (including 1 which shouldn't be ignored).
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.
