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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Rocky Brands, Inc. (NASDAQ:RCKY) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 1st of September to receive the dividend, which will be paid on the 16th of September.
Rocky Brands's next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.56 to shareholders. Looking at the last 12 months of distributions, Rocky Brands has a trailing yield of approximately 2.4% on its current stock price of $23.33. If you buy this business for its dividend, you should have an idea of whether Rocky Brands's dividend is reliable and sustainable. So we need to investigate whether Rocky Brands can afford its dividend, and if the dividend could grow.
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. Fortunately Rocky Brands's payout ratio is modest, at just 29% of profit. 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 paid out 25% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Rocky Brands'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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Rocky Brands, with earnings per share up 8.3% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Rocky Brands has delivered 4.9% dividend growth per year on average over the past seven years. 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.
The Bottom Line
From a dividend perspective, should investors buy or avoid Rocky Brands? Earnings per share have been growing moderately, and Rocky Brands is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Rocky Brands is halfway there. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Rocky Brands for the dividends alone, you should always be mindful of the risks involved. For example - Rocky Brands has 1 warning sign we think you should be aware of.
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.
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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