Barrett Business Services, Inc. (NASDAQ:BBSI) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Barrett Business Services’ shares before the 17th of November to receive the dividend, which will be paid on the 2nd of December.

The company’s next dividend payment will be US$0.30 per share, on the back of last year when the company paid a total of US$1.20 to shareholders. Based on the last year’s worth of payments, Barrett Business Services has a trailing yield of 1.2% on the current stock price of $96.45. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out the opportunities and risks within the US Professional Services industry.

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. Barrett Business Services has a low and conservative payout ratio of just 19% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

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

NasdaqGS:BBSI Historic Dividend November 12th 2022

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 earnings fall far enough, the company could be forced to cut its dividend. It’s encouraging to see Barrett Business Services has grown its earnings rapidly, up 21% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Barrett Business Services has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Barrett Business Services for the upcoming dividend? Barrett Business Services 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. There’s a lot to like about Barrett Business Services, and we would prioritise taking a closer look at it.

On that note, you’ll want to research what risks Barrett Business Services is facing. To that end, you should learn about the 2 warning signs we’ve spotted with Barrett Business Services (including 1 which is a bit unpleasant).

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Barrett Business Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.