Sturm, Ruger & Company, Inc. (NYSE:RGR) is about to trade ex-dividend in the next four 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Sturm Ruger's shares on or after the 14th of August will not receive the dividend, which will be paid on the 28th of August.

The company's next dividend payment will be US$0.21 per share, and in the last 12 months, the company paid a total of US$0.46 per share. Last year's total dividend payments show that Sturm Ruger has a trailing yield of 1.2% on the current share price of US$37.11. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sturm Ruger 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. Sturm Ruger is paying out an acceptable 58% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Sturm Ruger generated enough free cash flow to afford its dividend. The good news is it paid out just 13% of its free cash flow in the last year.

It's positive to see that Sturm Ruger'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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sturm Ruger's earnings per share have plummeted approximately 32% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sturm Ruger's dividend payments per share have declined at 9.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Sturm Ruger got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Sturm Ruger's dividend merits.

So if you want to do more digging on Sturm Ruger, you'll find it worthwhile knowing the risks that this stock faces.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.