Sturm Ruger (NYSE:RGR) Will Pay A Smaller Dividend Than Last Year
Sturm, Ruger & Company, Inc.'s (NYSE:RGR) dividend is being reduced from last year's payment covering the same period to $0.32 on the 31st of May. However, the dividend yield of 3.7% is still a decent boost to shareholder returns.
See our latest analysis for Sturm Ruger
Sturm Ruger Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. But before making this announcement, Sturm Ruger's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 77% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
Earnings per share could rise by 10.2% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 165%, which is a bit high and could start applying pressure to the balance sheet.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $1.49, compared to the most recent full-year payment of $1.98. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sturm Ruger has impressed us by growing EPS at 10% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
In Summary
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Sturm Ruger has been making. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Sturm Ruger that investors should know about before committing capital to this stock. Is Sturm Ruger not quite the opportunity you were looking for? Why not check out our selection of top 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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