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Don't Race Out To Buy Douglas Dynamics, Inc. (NYSE:PLOW) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Douglas Dynamics, Inc. (NYSE:PLOW) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 30th of September.

Douglas Dynamics's next dividend payment will be US$0.28 per share, on the back of last year when the company paid a total of US$1.12 to shareholders. Looking at the last 12 months of distributions, Douglas Dynamics has a trailing yield of approximately 3.0% on its current stock price of $37.49. If you buy this business for its dividend, you should have an idea of whether Douglas Dynamics's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Douglas Dynamics

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. Douglas Dynamics reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 42% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Douglas Dynamics 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Douglas Dynamics has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Douglas Dynamics's balance sheet health here.

The Bottom Line

Has Douglas Dynamics got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Douglas Dynamics as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Douglas Dynamics that we strongly recommend you have a look at before investing in the company.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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