Readers hoping to buy Djerriwarrh Investments Limited (ASX:DJW) 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 29th of January will not receive the dividend, which will be paid on the 22nd of February.
Djerriwarrh Investments's next dividend payment will be AU$0.052 per share. Last year, in total, the company distributed AU$0.10 to shareholders. Based on the last year's worth of payments, Djerriwarrh Investments has a trailing yield of 3.4% on the current stock price of A$3.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Djerriwarrh Investments distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Djerriwarrh Investments's earnings per share have dropped 19% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Djerriwarrh Investments's dividend payments per share have declined at 8.7% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Has Djerriwarrh Investments got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Djerriwarrh Investments is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Djerriwarrh Investments doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
With that being said, if you're still considering Djerriwarrh Investments as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 4 warning signs for Djerriwarrh Investments (1 shouldn't be ignored) you should be aware of.
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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