Readers hoping to buy Quanex Building Products Corporation (NYSE:NX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 16th of March will not receive the dividend, which will be paid on the 31st of March.
Quanex Building Products’s upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Based on the last year’s worth of payments, Quanex Building Products stock has a trailing yield of around 2.2% on the current share price of $14.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Quanex Building Products
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. Quanex Building Products’s dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Quanex Building Products didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Quanex Building Products reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Quanex Building Products has increased its dividend at approximately 10% a year on average.
Remember, you can always get a snapshot of Quanex Building Products’s financial health, by checking our visualisation of its financial health, here.
Has Quanex Building Products got what it takes to maintain its dividend payments? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
So if you’re still interested in Quanex Building Products despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we’ve identified 3 warning signs for Quanex Building Products (1 is a bit concerning) you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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