Why It Might Not Make Sense To Buy Jerash Holdings (US), Inc. (NASDAQ:JRSH) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jerash Holdings (US), Inc. (NASDAQ:JRSH) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Jerash Holdings (US)'s shares before the 15th of August in order to be eligible for the dividend, which will be paid on the 23rd of August.
The company's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Based on the last year's worth of payments, Jerash Holdings (US) has a trailing yield of 5.6% on the current stock price of $3.59. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Jerash Holdings (US) can afford its dividend, and if the dividend could grow.
View our latest analysis for Jerash Holdings (US)
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. Last year Jerash Holdings (US) paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Jerash Holdings (US)'s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Jerash Holdings (US)'s earnings per share have fallen at approximately 29% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Jerash Holdings (US) dividends are largely the same as they were five years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
To Sum It Up
Is Jerash Holdings (US) worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 104% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Bottom line: Jerash Holdings (US) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Jerash Holdings (US) don't faze you, it's worth being mindful of the risks involved with this business. For example - Jerash Holdings (US) has 3 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
