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We Wouldn't Be Too Quick To Buy Quanex Building Products Corporation (NYSE:NX) Before It Goes Ex-Dividend

Simply Wall St
·4 mins read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Quanex Building Products Corporation (NYSE:NX) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 15th of September in order to be eligible for this dividend, which will be paid on the 30th of September.

Quanex Building Products's next dividend payment will be US$0.08 per share, and in the last 12 months, the company paid a total of US$0.32 per share. Based on the last year's worth of payments, Quanex Building Products has a trailing yield of 1.8% on the current stock price of $18.08. 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 Quanex Building Products

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. Quanex Building Products's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. 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. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

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

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historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Quanex Building Products 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. Since the start of our data, 10 years ago, Quanex Building Products has lifted its dividend by approximately 10% a year on average.

Remember, you can always get a snapshot of Quanex Building Products's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Quanex Building Products? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Quanex Building Products is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Quanex Building Products don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 3 warning signs for Quanex Building Products (1 is a bit unpleasant) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.