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Should Income Investors Look At Weyco Group, Inc. (NASDAQ:WEYS) Before Its Ex-Dividend?

Simply Wall St

Weyco Group, Inc. (NASDAQ:WEYS) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 28th of May will not receive the dividend, which will be paid on the 30th of June.

Weyco Group's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.96 to shareholders. Last year's total dividend payments show that Weyco Group has a trailing yield of 5.1% on the current share price of $18.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Weyco Group

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. Weyco Group paid out 52% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 how much of its profit Weyco Group paid out over the last 12 months.

NasdaqGS:WEYS Historical Dividend Yield May 24th 2020

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Weyco Group's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A payout ratio of 52% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Weyco Group has lifted its dividend by approximately 4.8% a year on average.

To Sum It Up

Should investors buy Weyco Group for the upcoming dividend? Weyco Group has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. All things considered, we are not particularly enthused about Weyco Group from a dividend perspective.

If you're not too concerned about Weyco Group's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for Weyco Group that you should be aware of before investing in their shares.

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.

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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. Thank you for reading.