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Here's Why We're Wary Of Buying Flexsteel Industries' (NASDAQ:FLXS) For Its Upcoming Dividend

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Simply Wall St
·3 min read
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Flexsteel Industries, Inc. (NASDAQ:FLXS) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 22nd of December will not receive the dividend, which will be paid on the 4th of January.

Flexsteel Industries's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share to shareholders. Calculating the last year's worth of payments shows that Flexsteel Industries has a trailing yield of 1.2% on the current share price of $34.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Flexsteel Industries

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. Flexsteel Industries reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Flexsteel Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see how much of its profit Flexsteel Industries paid out over the last 12 months.

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historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Flexsteel Industries reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Flexsteel Industries has delivered 7.2% dividend growth per year on average over the past 10 years.

Get our latest analysis on Flexsteel Industries's balance sheet health here.

Final Takeaway

Should investors buy Flexsteel Industries for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Flexsteel Industries.

With that in mind though, if the poor dividend characteristics of Flexsteel Industries don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 2 warning signs for Flexsteel Industries (1 doesn't sit too well with us) 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.

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