Crown Crafts, Inc. (NASDAQ:CRWS) will pay a dividend of $0.08 on the 5th of January. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

Check out our latest analysis for Crown Crafts

Crown Crafts' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Crown Crafts was paying out 74% of earnings, but a comparatively small 38% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 2.2% if the company continues along the path it has been on recently. If the dividend continues along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. There hasn't been much of a change in the dividend over the last 10 years. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been crawling upwards at 2.2% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On Crown Crafts' Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Crown Crafts that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.