Resources Connection, Inc. (NASDAQ:RECN) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 21st of August will not receive this dividend, which will be paid on the 19th of September.
Resources Connection's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.52 to shareholders. Last year's total dividend payments show that Resources Connection has a trailing yield of 3.3% on the current share price of $16.98. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Resources Connection is paying out an acceptable 52% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Resources Connection generated enough free cash flow to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.
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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Resources Connection's earnings per share have risen 14% per annum over the last five years. Resources Connection has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Resources Connection has delivered an average of 15% per year annual increase in its dividend, based on the past 9 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Resources Connection worth buying for its dividend? We like Resources Connection's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
Curious what other investors think of Resources Connection? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.