The board of Johnson Outdoors Inc. (NASDAQ:JOUT) has announced that it will be increasing its dividend by 3.3% on the 27th of October to $0.31, up from last year's comparable payment of $0.30. Even though the dividend went up, the yield is still quite low at only 2.3%.
Johnson Outdoors' Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Johnson Outdoors' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 30.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.
Johnson Outdoors Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2013, the annual payment back then was $0.30, compared to the most recent full-year payment of $1.20. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 4.7% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Johnson Outdoors has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Johnson Outdoors' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Johnson Outdoors is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Johnson Outdoors (1 is a bit unpleasant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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