We wouldn’t be too quick to buy Weyco Group, Inc. (NASDAQ: WEYS) before it becomes ex-dividend
It looks like Weyco Group, Inc. (NASDAQ: WEYS) is set to be ex-dividend within the next three days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. This means that you will have to buy Weyco Group shares before August 26 to receive the dividend, which will be paid on September 30.
The company’s next dividend payment will be US $ 0.24 per share, and over the past 12 months the company has paid a total of US $ 0.96 per share. Calculating the value of last year’s payouts shows Weyco Group has a rolling 4.0% return on the current share price of $ 23.96. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest analysis for the Weyco group
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, the dividend could be unsustainable. The Weyco Group paid a worrying 213% of its profits in dividends last year, causing us to fear that there is something we don’t fully understand about the business. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Fortunately, he paid only 18% of his free cash flow last year.
It’s good to see that while the Weyco Group dividends weren’t covered by earnings, they are at least affordable from a cash flow perspective. Still, if the company were to repeatedly pay a dividend greater than its profits, we would be concerned. Extraordinarily few companies are able to persistently pay out a dividend in excess of their profits.
Click here to see how much of its profit Weyco Group has paid in the past 12 months.
Have profits and dividends increased?
Companies with declining profits are riskier for dividend shareholders. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. With that in mind, we are hampered by the 23% per year drop in Weyco Group profits over the past five years. When earnings per share decrease, the maximum amount of dividends that can be paid also decreases.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Weyco Group has increased its dividend by around 4.1% per year on average. It’s intriguing, but the combination of growing dividends despite falling profits can usually only be achieved by paying a higher percentage of the profits. The Weyco Group is already paying out 213% of its profits, and with declining profits, we believe this dividend is unlikely to increase rapidly in the future.
The bottom line
Is the Weyco Group worth buying for its dividend? It’s never great to see earnings per share go down, especially when a company pays out 213% of its profits as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower – good news from a dividend perspective – which makes us wonder why there is such a mismatch between income and cash flow. Given how things have developed from a dividend standpoint, we would be inclined to avoid the Weyco Group.
That being said, if you still envision the Weyco Group as an investment, you’ll find it useful to know what risks this stock faces. To this end, you should inquire about the 4 warning signs we spotted with Weyco Group (including 1 essential).
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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