Yahoo Finance Designer Brands Inc. (NYSE:DBI) Passed Our Checks, And It's About To Pay A US$0.05 Dividend
Readers hoping to buy Designer Brands Inc. (NYSE:DBI) 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. In other words, investors can purchase Designer Brands' shares before the 30th of March in order to be eligible for the dividend, which will be paid on the 14th of April.
The company's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Last year's total dividend payments show that Designer Brands has a trailing yield of 2.3% on the current share price of $8.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Designer Brands
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. Designer Brands paid out just 8.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Designer Brands generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 9.2% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Designer Brands has grown its earnings rapidly, up 25% a year for the past five years. Designer Brands looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Designer Brands has seen its dividend decline 5.7% per annum on average over the past 10 years, which is not great to see. Designer Brands is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Is Designer Brands an attractive dividend stock, or better left on the shelf? It's great that Designer Brands is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Designer Brands, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Designer Brands is facing. Our analysis shows 3 warning signs for Designer Brands that we strongly recommend you have a look at before investing in the company.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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