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We Wouldn't Be Too Quick To Buy Graham Corporation (NYSE:GHM) Before It Goes Ex-Dividend

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Graham Corporation (NYSE:GHM) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 10th of February in order to receive the dividend, which the company will pay on the 25th of February.

Graham's next dividend payment will be US$0.11 per share. Last year, in total, the company distributed US$0.44 to shareholders. Looking at the last 12 months of distributions, Graham has a trailing yield of approximately 2.4% on its current stock price of $18.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Graham has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Graham

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Graham reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:GHM Historical Dividend Yield, February 5th 2020
NYSE:GHM Historical Dividend Yield, February 5th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Graham reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Graham has lifted its dividend by approximately 19% a year on average.

Get our latest analysis on Graham's balance sheet health here.

Final Takeaway

Should investors buy Graham for the upcoming dividend? It's hard to get used to Graham paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not that we think Graham is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Ever wonder what the future holds for Graham? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.