Here's Why We're Wary Of Buying Easton Investments' (ASX:EAS) For Its Upcoming Dividend

It looks like Easton Investments Limited (ASX:EAS) is about to go ex-dividend in the next three days. You can purchase shares before the 22nd of December in order to receive the dividend, which the company will pay on the 21st of January.

The upcoming dividend for Easton Investments is AU$0.05 per share, increased from last year's total dividends per share of AU$0.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Easton Investments

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. Last year Easton Investments paid out 93% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

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.

Click here to see how much of its profit Easton Investments paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Easton Investments earnings per share are up 2.6% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, two years ago, Easton Investments has lifted its dividend by approximately 41% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Easton Investments? Easton Investments has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in Easton Investments despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 5 warning signs for Easton Investments that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top 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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