Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Globe International Limited (ASX:GLB) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 5th of March, you won’t be eligible to receive this dividend, when it is paid on the 20th of March.
Globe International’s next dividend payment will be AU$0.05 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Calculating the last year’s worth of payments shows that Globe International has a trailing yield of 8.5% on the current share price of A$1.42. If you buy this business for its dividend, you should have an idea of whether Globe International’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s 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. Globe International is paying out an acceptable 64% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 95% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want look more closely here.
Globe International paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Cash is king, as they say, and were Globe International to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Globe International has grown its earnings rapidly, up 36% a year for the past five years. Earnings have been growing quickly, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Globe International has delivered an average of 9.1% per year annual increase in its dividend, based on the past ten 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
Should investors buy Globe International for the upcoming dividend? Earnings per share growth is a positive, and the company’s payout ratio looks normal. However, we note Globe International paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Globe International’s dividend merits.
Curious about whether Globe International has been able to consistently generate growth? Here’s a chart of its historical revenue and earnings growth.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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