Readers hoping to buy Universal Forest Products, Inc. (NASDAQ:UFPI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 27th of November to receive the dividend, which will be paid on the 15th of December.
Universal Forest Products's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Looking at the last 12 months of distributions, Universal Forest Products has a trailing yield of approximately 0.8% on its current stock price of $48.63. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Universal Forest Products can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Universal Forest Products is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Universal Forest Products generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow 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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Universal Forest Products has grown its earnings rapidly, up 31% a year for the past five years. Universal Forest Products looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Universal Forest Products has delivered 26% dividend growth per year on average over the past ten years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Universal Forest Products? Universal Forest Products has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
Curious what other investors think of Universal Forest Products? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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