UFP Industries, Inc. (NASDAQ:UFPI) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 30th of November in order to be eligible for this dividend, which will be paid on the 15th of December.
UFP Industries's next dividend payment will be US$0.13 per share, and in the last 12 months, the company paid a total of US$0.50 per share. Calculating the last year's worth of payments shows that UFP Industries has a trailing yield of 0.9% on the current share price of $54.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether UFP Industries has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. UFP Industries is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see UFP Industries has grown its earnings rapidly, up 30% a year for the past five years. UFP Industries earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, UFP Industries has increased its dividend at approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is UFP Industries an attractive dividend stock, or better left on the shelf? We love that UFP Industries 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. There's a lot to like about UFP Industries, and we would prioritise taking a closer look at it.
So while UFP Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for UFP Industries you should be aware of.
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.
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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