LSI Industries Inc. (NASDAQ:LYTS) The stock is set to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. This means that investors who buy shares of LSI Industries on or after February 4 will not receive the dividend, which will be paid on February 15.
The company’s next dividend payment will be $0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Last year’s total dividend payout shows that LSI Industries has a 2.7% yield on the current stock price of $7.335. If you’re buying this company for its dividend, you should have some idea of the reliability and sustainability of LSI Industries’ dividend. So we need to consider whether LSI Industries can afford its dividend and whether the dividend could increase.
Check out our latest analysis for LSI Industries
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Fortunately, LSI Industries’ payout ratio is modest, at just 34% of profits. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. The good thing is that dividends were well covered by free cash flow, with the company paying out 20% of its free cash flow last year.
It is positive to see that the LSI Industries dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher margin security before the dividend is reduced.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with declining profits are riskier for dividend shareholders. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. That’s why it’s not ideal to see LSI Industries’ earnings per share decline by 5.0% per year over the past five years.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. It looks like LSI Industries’ dividends are largely the same as 10 years ago. When profits are falling but dividends are stable, the company usually pays out a higher share of its profits, or puts cash or debt on the balance sheet, which is not ideal.
To sum up
Does LSI Industries have what it takes to maintain its dividend payouts? LSI Industries has comfortably low cash and earnings payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Nevertheless, we consider the decline in earnings to be a warning sign. Although he has good things to do, we are a bit ambivalent and it would take more to convince us of the merits of the LSI Industries dividend.
With this in mind, an essential part of thorough stock research is to be aware of all the risks stocks currently face. For example, we have identified 4 warning signs for LSI Industries (1 is significant) which you should be aware of.
However, we wouldn’t recommend simply buying the first dividend-paying stock you see. Here is a list of attractive dividend stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.