Is It Smart To Buy UFP Industries, Inc. (NASDAQ:UFPI) Before It Goes Ex-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 UFP Industries, Inc. (NASDAQ:UFPI) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, UFP Industries investors that purchase the stock on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Calculating the last year's worth of payments shows that UFP Industries has a trailing yield of 1.2% on the current share price of $101.04. If you buy this business for its dividend, you should have an idea of whether UFP Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for UFP Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. UFP Industries has a low and conservative payout ratio of just 11% of its income after tax. A useful secondary check can be to evaluate whether UFP Industries generated enough free cash flow to afford its dividend. Luckily it paid out just 7.1% of its free cash flow last year.

It's positive to see that UFP Industries's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see UFP Industries's earnings have been skyrocketing, up 36% per annum for the past five years. UFP Industries looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, UFP Industries has lifted its dividend by approximately 25% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is UFP Industries an attractive dividend stock, or better left on the shelf? UFP Industries has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. UFP Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while UFP Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For example - UFP Industries has 1 warning sign we think you should be aware of.

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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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.