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The board of Ethan Allen Interiors Inc. (NYSE:ETD) has announced that it will pay a dividend on the 29th of May, with investors receiving $0.39 per share. The dividend yield will be 7.5% based on this payment which is still above the industry average.
Our free stock report includes 2 warning signs investors should be aware of before investing in Ethan Allen Interiors. Read for free now.
Ethan Allen Interiors' Future Dividends May Potentially Be At Risk
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Ethan Allen Interiors is earning enough to cover the payment, but then it makes up 96% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
EPS is set to fall by 7.0% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 103%, which is definitely a bit high to be sustainable going forward.
Check out our latest analysis for Ethan Allen Interiors
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was $0.48, compared to the most recent full-year payment of $1.96. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Ethan Allen Interiors has impressed us by growing EPS at 28% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ethan Allen Interiors' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Case in point: We've spotted 2 warning signs for Ethan Allen Interiors (of which 1 can't be ignored!) you should know about. Is Ethan Allen Interiors not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.