Readers hoping to buy Ennis, Inc. (NYSE:EBF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 10th of October to receive the dividend, which will be paid on the 8th of November.
Ennis's next dividend payment will be US$0.2 per share, and in the last 12 months, the company paid a total of US$0.9 per share. Calculating the last year's worth of payments shows that Ennis has a trailing yield of 4.6% on the current share price of $19.69. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ennis is paying out an acceptable 62% of its profit, a common payout level among most companies. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Ennis'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.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Ennis's earnings have been skyrocketing, up 23% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Ennis could have strong prospects for future increases to the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Ennis has lifted its dividend by approximately 3.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Ennis is keeping back more of its profits to grow the business.
To Sum It Up
Should investors buy Ennis for the upcoming dividend? We like Ennis's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Ennis looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Ennis? See what the two analysts we track 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 firstname.lastname@example.org. 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.