Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Jerash Holdings (US), Inc. (NASDAQ:JRSH) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Jerash Holdings (US) investors that purchase the stock on or after the 16th of November will not receive the dividend, which will be paid on the 23rd of November.
The company's next dividend payment will be US$0.05 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Looking at the last 12 months of distributions, Jerash Holdings (US) has a trailing yield of approximately 2.6% on its current stock price of US$7.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Jerash Holdings (US) can afford its dividend, and if the dividend could grow.
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. Jerash Holdings (US) paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
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.
See our latest analysis for Jerash Holdings (US)
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 not encouraging to see that Jerash Holdings (US)'s earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Jerash Holdings (US) dividends are largely the same as they were eight years ago.
Final Takeaway
Is Jerash Holdings (US) an attractive dividend stock, or better left on the shelf? It's unfortunate that earnings per share have not grown, and we'd note that Jerash Holdings (US) is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
While it's tempting to invest in Jerash Holdings (US) for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Jerash Holdings (US) you should know about.
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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