Why You Should Leave Intact Financial Corporation’s (TSE:IFC) Upcoming Dividend On The Shelf

Intact Financial Corporation (TSE:IFC) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 13th of March will not receive the dividend, which will be paid on the 31st of March.

Intact Financial’s next dividend payment will be CA$0.83 per share. Last year, in total, the company distributed CA$3.32 to shareholders. Last year’s total dividend payments show that Intact Financial has a trailing yield of 2.2% on the current share price of CA$150.82. If you buy this business for its dividend, you should have an idea of whether Intact Financial’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Intact Financial

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. Intact Financial paid out 60% of its earnings to investors last year, a normal payout level for most businesses.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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

TSX:IFC Historical Dividend Yield, March 8th 2020
TSX:IFC Historical Dividend Yield, March 8th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s not ideal to see Intact Financial’s earnings per share have been shrinking at 2.6% a year over the previous five years.

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, ten years ago, Intact Financial has lifted its dividend by approximately 10% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it’s always worth checking for when the company can’t increase the payout ratio any more – because then the music stops.

To Sum It Up

Is Intact Financial an attractive dividend stock, or better left on the shelf? We’re not overly enthused to see Intact Financial’s earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don’t generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Wondering what the future holds for Intact Financial? See what the 11 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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