Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see IVE Group Limited (ASX:IGL) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 24th of October.
IVE Group’s upcoming dividend is AU$0.077 a share, following on from the last 12 months, when the company distributed a total of AU$0.16 per share to shareholders. Based on the last year’s worth of payments, IVE Group has a trailing yield of 7.5% on the current stock price of A$2.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. It paid out 94% 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.
IVE Group paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to IVE Group’s ability to maintain its dividend.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, IVE Group’s earnings per share have been growing at 18% a year for the past five years. Earnings have been growing at a decent rate, 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. Since the start of our data, three years ago, IVE Group has lifted its dividend by approximately 24% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is IVE Group an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company’s payout ratio looks normal. However, we note IVE Group paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it’s hard to get excited about IVE Group from a dividend perspective.
Wondering what the future holds for IVE Group? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.