Crown Crafts dividend only four days to collect (NASDAQ: CRWS)

Crown Crafts, Inc. (NASDAQ: CRWS) is set to trade ex-dividend within the next four days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made on or after that date may mean a late settlement that does not appear on the record date. In other words, investors can buy Crown Crafts shares before December 9 in order to be eligible for the dividend, which will be paid on December 31.

The company’s next dividend payment will be US $ 0.43 per share, compared to last year when the company paid a total of US $ 0.57 to shareholders. Looking at the last 12 months of distributions, Crown Crafts has a sliding return of around 8.9% on its current price of $ 7.5. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

See our latest review for Crown Crafts

Dividends are usually paid out of the company’s profits, so if a company pays more than what it earns, its dividend is usually at risk of being reduced. This is why it is good to see Crown Crafts donating a modest 43% of its income. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. It paid out 110% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need more cash than income – the expenses don’t pay for themselves – so it’s not great to see them shell out so much of their cash flow.

Crown Crafts paid less dividends than it earned profits, but unfortunately it did not generate enough cash to cover the dividend. If this happened repeatedly, it would pose a risk to Crown Crafts’ ability to maintain its dividend.

Click here to see how much of its profits Crown Crafts has paid in the past 12 months.

Have Profits and Dividends Increased?

Stocks with stable earnings can still be attractive dividend payers, but it’s important to be more careful in your approach and demand a greater margin of safety when it comes to dividend sustainability. If profits fall enough, the company could be forced to cut its dividend. It is not encouraging to see that Crown Crafts revenue has actually been stable over the past five years. It’s better than seeing them go down, of course, but over the long term, all the best dividend-paying stocks are capable of significantly increasing their earnings per share. Profits have risen somewhat, but we’re concerned that dividend payments have consumed most of the company’s cash flow over the past year.

Many investors will assess a company’s dividend performance by evaluating how much dividend payments have changed over time. Crown Crafts has generated an average annual increase of 19% per annum in its dividend, based on dividend payments over the past 10 years.

To summarize

Should investors buy Crown Crafts for the next dividend? Earnings per share barely increased during this time, and although Crown Crafts paid out a small percentage of its earnings, its dividend was not well covered by free cash flow. We rarely find companies paying a low percentage of their profits but a high percentage of their cash flow, so we mark this as a concern. It might be interesting to research whether the company is reinvesting in growth projects that have the potential to increase its earnings and dividends going forward, but at the moment we’re not very optimistic about its dividend outlook.

However, if you are still interested in Crown Crafts as a potential investment, you should definitely consider some of the risks involved with Crown Crafts. Every business has risks, and we have spotted 2 warning signs for Crown Crafts you should know.

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 any stock 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 any of the stocks mentioned.