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Ethan Allen Interiors Inc. (NYSE:ETD) Looks Interesting, And It's About To Pay A Dividend

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Ethan Allen Interiors Inc. (NYSE:ETD) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Ethan Allen Interiors' shares on or after the 13th of December will not receive the dividend, which will be paid on the 5th of January.

The company's upcoming dividend is US$0.29 a share, following on from the last 12 months, when the company distributed a total of US$1.75 per share to shareholders. Calculating the last year's worth of payments shows that Ethan Allen Interiors has a trailing yield of 7.8% on the current share price of $24.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ethan Allen Interiors has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Ethan Allen Interiors

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Ethan Allen Interiors paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Ethan Allen Interiors generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

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.

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

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historic-dividend

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Ethan Allen Interiors earnings per share are up 6.8% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Ethan Allen Interiors has lifted its dividend by approximately 25% 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.

To Sum It Up

Is Ethan Allen Interiors worth buying for its dividend? Earnings per share have been growing moderately, and Ethan Allen Interiors is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Ethan Allen Interiors is being conservative with its dividend payouts and could still perform reasonably over the long run. Ethan Allen Interiors looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Ethan Allen Interiors has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for Ethan Allen Interiors that you should be aware of before investing in their shares.

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.

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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.