Sturm, Ruger & Company, Inc. (NYSE:RGR) has announced that on 29th of August, it will be paying a dividend of$0.16, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 2.2%, which only provides a modest boost to overall returns.
Sturm Ruger's Future Dividends May Potentially Be At Risk
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 199% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 30%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to fall by 33.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 293%, which could put the dividend under pressure if earnings don't start to improve.
See our latest analysis for Sturm Ruger
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $1.25 in 2015 to the most recent total annual payment of $0.70. Doing the maths, this is a decline of about 5.6% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though Sturm Ruger's EPS has declined at around 33% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Sturm Ruger has 3 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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