Readers hoping to buy Ebix, Inc. (NASDAQ:EBIX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 1st of September in order to be eligible for this dividend, which will be paid on the 16th of September.
Ebix’s next dividend payment will be US$0.075 per share. Last year, in total, the company distributed US$0.30 to shareholders. Looking at the last 12 months of distributions, Ebix has a trailing yield of approximately 1.2% on its current stock price of $24.36. If you buy this business for its dividend, you should have an idea of whether Ebix’s dividend is reliable and sustainable. As a result, readers should always check whether Ebix has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Ebix has a low and conservative payout ratio of just 10% of its income after tax. A useful secondary check can be to evaluate whether Ebix generated enough free cash flow to afford its dividend. It paid out 9.5% of its free cash flow as dividends last year, which is conservatively low.
It’s positive to see that Ebix’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?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Ebix’s earnings per share have risen 12% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Ebix has delivered an average of 7.2% per year annual increase in its dividend, based on the past nine years of dividend payments. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Ebix worth buying for its dividend? It’s great that Ebix is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It’s a promising combination that should mark this company worthy of closer attention.
While it’s tempting to invest in Ebix for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 3 warning signs we’ve spotted with Ebix (including 1 which shouldn’t be ignored).
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.
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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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