We Wouldn't Be Too Quick To Buy Australian United Investment Company Limited (ASX:AUI) Before It Goes Ex-Dividend

Australian United Investment Company Limited (ASX:AUI) stock is about to trade ex-dividend in 2 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Australian United Investment's shares before the 28th of February to receive the dividend, which will be paid on the 21st of March.

The company's upcoming dividend is AU$0.17 a share, following on from the last 12 months, when the company distributed a total of AU$0.37 per share to shareholders. Calculating the last year's worth of payments shows that Australian United Investment has a trailing yield of 3.5% on the current share price of AU$10.63. If you buy this business for its dividend, you should have an idea of whether Australian United Investment's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Australian United Investment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Australian United Investment paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit Australian United Investment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Australian United Investment's earnings are down 2.0% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Australian United Investment has delivered 1.5% dividend growth per year on average over the past 10 years.

Final Takeaway

Has Australian United Investment got what it takes to maintain its dividend payments? Earnings per share are in decline and Australian United Investment is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Australian United Investment and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 1 warning sign with Australian United Investment and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.