Sturm, Ruger & Company, Inc. (NYSE:RGR) Is About To Go Ex-Dividend, And It Pays A 3.6% Yield
Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Sturm Ruger's shares before the 14th of August in order to be eligible for the dividend, which will be paid on the 30th of August.
The company's upcoming dividend is US$0.36 a share, following on from the last 12 months, when the company distributed a total of US$1.98 per share to shareholders. Calculating the last year's worth of payments shows that Sturm Ruger has a trailing yield of 3.6% on the current share price of $55.4. 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 investigate whether Sturm Ruger can afford its dividend, and if the dividend could grow.
View our latest analysis for Sturm Ruger
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. Sturm Ruger paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Sturm Ruger generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 242% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Sturm Ruger intends to continue funding this dividend, or if it could be forced to cut the payment.
Sturm Ruger does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Sturm Ruger paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Sturm Ruger's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Sturm Ruger earnings per share are up 5.4% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Sturm Ruger has lifted its dividend by approximately 2.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is Sturm Ruger worth buying for its dividend? Sturm Ruger delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 242% of its cash flow over the last year, which is a mediocre outcome. In summary, while it has some positive characteristics, we're not inclined to race out and buy Sturm Ruger today.
So if you want to do more digging on Sturm Ruger, you'll find it worthwhile knowing the risks that this stock faces. For example - Sturm Ruger has 2 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
