Sturm, Ruger & Company, Inc. (NYSE:RGR) Passed Our Checks, And It's About To Pay A US$0.56 Dividend
It looks like Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to go ex-dividend in the next two days. You will need to purchase shares before the 12th of November to receive the dividend, which will be paid on the 27th of November.
Sturm Ruger's upcoming dividend is US$0.56 a share, following on from the last 12 months, when the company distributed a total of US$0.72 per share to shareholders. Based on the last year's worth of payments, Sturm Ruger has a trailing yield of 1.0% on the current stock price of $68.72. If you buy this business for its dividend, you should have an idea of whether Sturm Ruger's dividend is reliable and sustainable. So we need to investigate whether Sturm Ruger can afford its dividend, and if the dividend could grow.
See our latest analysis for Sturm Ruger
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Sturm Ruger's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether Sturm Ruger generated enough free cash flow to afford its dividend. The good news is it paid out just 9.7% of its free cash flow in the last 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.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Sturm Ruger's earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Sturm Ruger has lifted its dividend by approximately 7.0% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Sturm Ruger for the upcoming dividend? It's great that Sturm Ruger is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Sturm Ruger for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for Sturm Ruger (1 is a bit unpleasant) you should be aware of.
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.
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.
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