Why It Might Not Make Sense To Buy RCI Hospitality Holdings, Inc. (NASDAQ:RICK) For Its Upcoming Dividend
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 RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, RCI Hospitality Holdings investors that purchase the stock on or after the 15th of September will not receive the dividend, which will be paid on the 30th of September.
The company's next dividend payment will be US$0.08 per share, on the back of last year when the company paid a total of US$0.32 to shareholders. Based on the last year's worth of payments, RCI Hospitality Holdings stock has a trailing yield of around 1.1% on the current share price of US$28.62. If you buy this business for its dividend, you should have an idea of whether RCI Hospitality Holdings's dividend is reliable and sustainable. As a result, readers should always check whether RCI Hospitality Holdings has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RCI Hospitality Holdings's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If RCI Hospitality Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 6.9% of its cash flow last year.
Check out our latest analysis for RCI Hospitality Holdings
Click here to see how much of its profit RCI Hospitality Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. RCI Hospitality Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, RCI Hospitality Holdings has lifted its dividend by approximately 10% a year on average.
Get our latest analysis on RCI Hospitality Holdings's balance sheet health here.
To Sum It Up
Should investors buy RCI Hospitality Holdings for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with RCI Hospitality Holdings. Our analysis shows 2 warning signs for RCI Hospitality Holdings and you should be aware of them before buying any shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.