Be Sure To Check Out Euroseas Ltd. (NASDAQ:ESEA) Before It Goes Ex-Dividend
It looks like Euroseas Ltd. (NASDAQ:ESEA) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Meaning, you will need to purchase Euroseas' shares before the 8th of March to receive the dividend, which will be paid on the 16th of March.
The company's upcoming dividend is US$0.50 a share, following on from the last 12 months, when the company distributed a total of US$2.00 per share to shareholders. Looking at the last 12 months of distributions, Euroseas has a trailing yield of approximately 10.0% on its current stock price of $20.03. If you buy this business for its dividend, you should have an idea of whether Euroseas's dividend is reliable and sustainable. So we need to investigate whether Euroseas can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Euroseas
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Euroseas paid out just 7.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Euroseas's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Euroseas's earnings have been skyrocketing, up 85% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Euroseas's dividend payments per share have declined at 17% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
Should investors buy Euroseas for the upcoming dividend? It's great that Euroseas 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. Euroseas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Euroseas looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Euroseas is showing 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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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