We Wouldn't Be Too Quick To Buy Bassett Furniture Industries, Incorporated (NASDAQ:BSET) Before It Goes Ex-Dividend

Readers hoping to buy Bassett Furniture Industries, Incorporated (NASDAQ:BSET) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 28th of August.

Bassett Furniture Industries's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.50 to shareholders. Last year's total dividend payments show that Bassett Furniture Industries has a trailing yield of 3.6% on the current share price of $8.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Bassett Furniture Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bassett Furniture Industries paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Bassett Furniture Industries 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. Over the past year it paid out 176% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Bassett Furniture Industries does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Click here to see how much of its profit Bassett Furniture Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Bassett Furniture Industries 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. Bassett Furniture Industries has delivered 12% dividend growth per year on average over the past nine years.

We update our analysis on Bassett Furniture Industries every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Bassett Furniture Industries worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Bassett Furniture Industries and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 3 warning signs for Bassett Furniture Industries you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top 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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