Richards Packaging Income Fund (TSE:RPI.UN) stock is about to trade ex-dividend in three days. If you purchase the stock on or after the 29th of September, you won't be eligible to receive this dividend, when it is paid on the 14th of October.
Richards Packaging Income Fund's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.32 to shareholders. Calculating the last year's worth of payments shows that Richards Packaging Income Fund has a trailing yield of 1.6% on the current share price of CA$80.52. 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 check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Richards Packaging Income Fund's payout ratio is modest, at just 42% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's positive to see that Richards Packaging Income Fund'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.
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 Richards Packaging Income Fund has grown its earnings rapidly, up 33% a year for the past five years. Richards Packaging Income Fund is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Richards Packaging Income Fund has delivered an average of 5.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Richards Packaging Income Fund is keeping back more of its profits to grow the business.
To Sum It Up
Is Richards Packaging Income Fund an attractive dividend stock, or better left on the shelf? We love that Richards Packaging Income Fund is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Richards Packaging Income Fund looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Richards Packaging Income Fund for the dividends alone, you should always be mindful of the risks involved. For example - Richards Packaging Income Fund has 2 warning signs we think you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 firstname.lastname@example.org.