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It looks like Ethan Allen Interiors Inc. (NYSE:ETH) is about to go ex-dividend in the next 3 days. You can purchase shares before the 9th of October in order to receive the dividend, which the company will pay on the 25th of October.
Ethan Allen Interiors's next dividend payment will be US$0.2 per share, and in the last 12 months, the company paid a total of US$1.8 per share. Based on the last year's worth of payments, Ethan Allen Interiors stock has a trailing yield of around 9.9% on the current share price of $18.53. 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! As a result, readers should always check whether Ethan Allen Interiors has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Ethan Allen Interiors
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Ethan Allen Interiors's earnings per share have dropped 8.3% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ethan Allen Interiors has delivered 6.3% dividend growth per year on average over the past ten years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Ethan Allen Interiors is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.