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FutureFuel Corp. (NYSE:FF) Passed Our Checks, And It's About To Pay A US$0.06 Dividend

Simply Wall St
·4 mins read

It looks like FutureFuel Corp. (NYSE:FF) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.

FutureFuel's upcoming dividend is US$0.06 a share, following on from the last 12 months, when the company distributed a total of US$0.24 per share to shareholders. Based on the last year's worth of payments, FutureFuel has a trailing yield of 1.9% on the current stock price of $12.63. If you buy this business for its dividend, you should have an idea of whether FutureFuel's dividend is reliable and sustainable. As a result, readers should always check whether FutureFuel has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for FutureFuel

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. FutureFuel paid out just 9.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 paid out 10% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that FutureFuel'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 how much of its profit FutureFuel paid out over the last 12 months.


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. For this reason, we're glad to see FutureFuel's earnings per share have risen 16% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. FutureFuel's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. FutureFuel is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy FutureFuel for the upcoming dividend? It's great that FutureFuel is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about FutureFuel, and we would prioritise taking a closer look at it.

In light of that, while FutureFuel has an appealing dividend, it's worth knowing the risks involved with this stock. For example - FutureFuel has 2 warning signs we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.