There's A Lot To Like About Ethan Allen Interiors' (NYSE:ETD) Upcoming US$0.36 Dividend
It looks like Ethan Allen Interiors Inc. (NYSE:ETD) is about to go ex-dividend in the next 3 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Ethan Allen Interiors' shares on or after the 5th of February, you won't be eligible to receive the dividend, when it is paid on the 22nd of February.
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$1.94 per share to shareholders. Last year's total dividend payments show that Ethan Allen Interiors has a trailing yield of 6.7% on the current share price of US$29.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Ethan Allen Interiors
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. That's why it's good to see Ethan Allen Interiors paying out a modest 45% of its earnings. 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. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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?
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Ethan Allen Interiors's earnings per share have been growing at 19% a year for the past five years. Ethan Allen Interiors has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ethan Allen Interiors has increased its dividend at approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Ethan Allen Interiors an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Ethan Allen Interiors, and we would prioritise taking a closer look at it.
While it's tempting to invest in Ethan Allen Interiors for the dividends alone, you should always be mindful of the risks involved. Be aware that Ethan Allen Interiors is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
If you're in the market for strong dividend payers, we recommend checking 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.
