Yahoo Finance Three Days Left To Buy The Eastern Company (NASDAQ:EML) Before The Ex-Dividend Date
Readers hoping to buy The Eastern Company (NASDAQ:EML) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Eastern's shares on or after the 14th of May, you won't be eligible to receive the dividend, when it is paid on the 17th of June.
The company's next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.44 per share. Based on the last year's worth of payments, Eastern has a trailing yield of 1.5% on the current stock price of US$29.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Eastern can afford its dividend, and if the dividend could grow.
View our latest analysis for Eastern
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Eastern paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether Eastern generated enough free cash flow to afford its dividend. Luckily it paid out just 17% of its free cash flow last year.
It's positive to see that Eastern's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Eastern paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Eastern's earnings per share have dropped 7.2% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Eastern's dividend payments are effectively flat on where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Final Takeaway
Has Eastern got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Eastern today.
While it's tempting to invest in Eastern for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Eastern you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.
