Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Recently, Rush Enterprises Inc (NASDAQ:RUSH.B) has started paying dividends to shareholders. Today it yields 1.2%. Let’s dig deeper into whether Rush Enterprises should have a place in your portfolio.
See our latest analysis for Rush Enterprises
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Does it pay an annual yield higher than 75% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has dividend per share amount increased over the past?
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Does earnings amply cover its dividend payments?
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Will it have the ability to keep paying its dividends going forward?
How well does Rush Enterprises fit our criteria?
The company currently pays out 2.6% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Rush Enterprises as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Rush Enterprises has a yield of 1.2%, which is on the low-side for Trade Distributors stocks.
Next Steps:
After digging a little deeper into Rush Enterprises’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three important aspects you should further research:
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Future Outlook: What are well-informed industry analysts predicting for RUSH.B’s future growth? Take a look at our free research report of analyst consensus for RUSH.B’s outlook.
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Valuation: What is RUSH.B worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RUSH.B is currently mispriced by the market.
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Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.