The board of Smith & Wesson Brands, Inc. (NASDAQ:SWBI) has announced that it will pay a dividend of $0.13 per share on the 21st of July. This means the annual payment is 6.0% of the current stock price, which is above the average for the industry.
Smith & Wesson Brands' Projections Indicate Future Payments May Be Unsustainable
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Smith & Wesson Brands was paying out 172% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.
EPS is set to fall by 9.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 242%, which could put the dividend in jeopardy if the company's earnings don't improve.
Check out our latest analysis for Smith & Wesson Brands
Smith & Wesson Brands Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2020, the annual payment back then was $0.20, compared to the most recent full-year payment of $0.52. This means that it has been growing its distributions at 21% per annum over that time. Smith & Wesson Brands has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. It's not great to see that Smith & Wesson Brands' earnings per share has fallen at approximately 9.6% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
We're Not Big Fans Of Smith & Wesson Brands' Dividend
Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Smith & Wesson Brands (of which 2 are potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.