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Readers hoping to buy Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Natural Grocers by Vitamin Cottage's shares on or after the 27th of August will not receive the dividend, which will be paid on the 15th of September.
The company's next dividend payment will be US$0.07 per share. Last year, in total, the company distributed US$0.28 to shareholders. Based on the last year's worth of payments, Natural Grocers by Vitamin Cottage has a trailing yield of 2.4% on the current stock price of $11.53. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Natural Grocers by Vitamin Cottage can afford its dividend, and if the dividend could grow.
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. Fortunately Natural Grocers by Vitamin Cottage's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Natural Grocers by Vitamin Cottage generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 42% 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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Natural Grocers by Vitamin Cottage's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Natural Grocers by Vitamin Cottage dividends are largely the same as they were two years ago.
To Sum It Up
Is Natural Grocers by Vitamin Cottage an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that Natural Grocers by Vitamin Cottage is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Natural Grocers by Vitamin Cottage is halfway there. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Natural Grocers by Vitamin Cottage is facing. For example - Natural Grocers by Vitamin Cottage has 1 warning sign we think you should be aware of.
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.
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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