Jumbo Interactive Limited (ASX:JIN) Will Pay A AU$0.17 Dividend In Four Days

Readers hoping to buy Jumbo Interactive Limited (ASX:JIN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 8th of September will not receive the dividend, which will be paid on the 30th of September.

Jumbo Interactive's upcoming dividend is AU$0.17 a share, following on from the last 12 months, when the company distributed a total of AU$0.35 per share to shareholders. Based on the last year's worth of payments, Jumbo Interactive has a trailing yield of 2.5% on the current stock price of A$14.3. If you buy this business for its dividend, you should have an idea of whether Jumbo Interactive's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Jumbo Interactive

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. It paid out 85% 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. Over the past year it paid out 116% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Jumbo Interactive 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 Jumbo Interactive's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. It's encouraging to see Jumbo Interactive has grown its earnings rapidly, up 94% 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. Since the start of our data, 10 years ago, Jumbo Interactive has lifted its dividend by approximately 37% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Jumbo Interactive for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Jumbo Interactive paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Jumbo Interactive from a dividend perspective.

If you want to look further into Jumbo Interactive, it's worth knowing the risks this business faces. For example, we've found 2 warning signs for Jumbo Interactive that we recommend you consider before investing in the business.

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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