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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Sturm Ruger investors that purchase the stock on or after the 14th of March will not receive the dividend, which will be paid on the 28th of March.
The company's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.70 to shareholders. Looking at the last 12 months of distributions, Sturm Ruger has a trailing yield of approximately 1.8% on its current stock price of US$39.62. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sturm Ruger has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Sturm Ruger
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. Fortunately Sturm Ruger's payout ratio is modest, at just 39% of profit. 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. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Sturm Ruger's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Sturm Ruger paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Sturm Ruger's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.