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It Might Not Be A Great Idea To Buy Fletcher Building Limited (NZSE:FBU) For Its Next 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 Fletcher Building Limited (NZSE:FBU) is about to go ex-dividend in just three days. You will need to purchase shares before the 24th of February to receive the dividend, which will be paid on the 24th of March.

Fletcher Building's next dividend payment will be NZ$0.12 per share. Last year, in total, the company distributed NZ$0.24 to shareholders. Looking at the last 12 months of distributions, Fletcher Building has a trailing yield of approximately 3.7% on its current stock price of NZ$6.44. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Fletcher Building can afford its dividend, and if the dividend could grow.

View our latest analysis for Fletcher Building

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. Fletcher Building'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. 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.

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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?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fletcher Building 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. Fletcher Building's dividend payments per share have declined at 1.5% per year on average over the past 10 years, which is uninspiring.

Get our latest analysis on Fletcher Building's balance sheet health here.

To Sum It Up

Has Fletcher Building 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." It's not that we think Fletcher Building is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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 Fletcher Building. To help with this, we've discovered 1 warning sign for Fletcher Building that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.