Dividend Investors: Don't Be Too Quick To Buy Joyce Corporation Ltd (ASX:JYC) For Its Upcoming Dividend

Joyce Corporation Ltd (ASX:JYC) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 11th of March, you won't be eligible to receive this dividend, when it is paid on the 9th of April.

Joyce's next dividend payment will be AU$0.07 per share, and in the last 12 months, the company paid a total of AU$0.14 per share. Based on the last year's worth of payments, Joyce stock has a trailing yield of around 5.7% on the current share price of A$2.47. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Joyce

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. Joyce distributed an unsustainably high 158% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Joyce fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Joyce's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

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, 10 years ago, Joyce has lifted its dividend by approximately 13% a year on average.

Final Takeaway

Is Joyce worth buying for its dividend? Along with flat earnings per share, Joyce paid out an uncomfortably high percentage of its earnings. It paid out a lower percentage of its free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Joyce as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 6 warning signs for Joyce (1 shouldn't be ignored!) that you ought to be aware of before buying the 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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