We Wouldn't Be Too Quick To Buy Friedman Industries, Incorporated (NYSEMKT:FRD) Before It Goes Ex-Dividend
Readers hoping to buy Friedman Industries, Incorporated (NYSEMKT:FRD) 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 7th of January to receive the dividend, which will be paid on the 5th of February.
Friedman Industries's upcoming dividend is US$0.02 a share, following on from the last 12 months, when the company distributed a total of US$0.08 per share to shareholders. Based on the last year's worth of payments, Friedman Industries stock has a trailing yield of around 1.2% on the current share price of $6.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Friedman Industries
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. Friedman Industries reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Friedman Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.
Click here to see how much of its profit Friedman Industries paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Friedman Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Friedman Industries has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Get our latest analysis on Friedman Industries's balance sheet health here.
The Bottom Line
Has Friedman Industries got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." It's not that we think Friedman Industries is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Friedman Industries. Our analysis shows 2 warning signs for Friedman Industries that we strongly recommend you have a look at before investing in the company.
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.
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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