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Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Sturm Ruger's shares on or after the 13th of November, you won't be eligible to receive the dividend, when it is paid on the 27th of November.
The company's next dividend payment will be US$0.11 per share. Last year, in total, the company distributed US$1.08 to shareholders. Based on the last year's worth of payments, Sturm Ruger has a trailing yield of 2.6% on the current stock price of US$41.00. If you buy this business for its dividend, you should have an idea of whether Sturm Ruger's dividend is reliable and sustainable. So we need to investigate whether Sturm Ruger can afford its dividend, and if the dividend could grow.
Check out 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. Sturm Ruger paid out a comfortable 39% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.
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 how much of its profit Sturm Ruger paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. 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 discomforted by Sturm Ruger's 9.1% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sturm Ruger's dividend payments per share have declined at 7.1% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.