Don't Race Out To Buy Steadfast Group Limited (ASX:SDF) Just Because It's Going Ex-Dividend

Steadfast Group Limited (ASX:SDF) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 1st of March, you won't be eligible to receive this dividend, when it is paid on the 25th of March.

Steadfast Group's next dividend payment will be AU$0.044 per share, on the back of last year when the company paid a total of AU$0.096 to shareholders. Last year's total dividend payments show that Steadfast Group has a trailing yield of 2.4% on the current share price of A$4. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Steadfast Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Steadfast Group paid out 101% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Steadfast Group, with earnings per share up 7.3% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Steadfast Group has delivered 15% dividend growth per year on average over the past seven years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Steadfast Group for the upcoming dividend? Steadfast Group has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Steadfast Group. Our analysis shows 2 warning signs for Steadfast Group and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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