Only Four Days Left To Cash In On Data#3's (ASX:DTL) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Data#3 Limited (ASX:DTL) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Data#3's shares on or after the 14th of March will not receive the dividend, which will be paid on the 31st of March.

The company's upcoming dividend is AU$0.131 a share, following on from the last 12 months, when the company distributed a total of AU$0.26 per share to shareholders. Last year's total dividend payments show that Data#3 has a trailing yield of 3.4% on the current share price of AU$7.64. If you buy this business for its dividend, you should have an idea of whether Data#3's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Data#3

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 Data#3 paid out 91% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 70% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Data#3's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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. Fortunately for readers, Data#3's earnings per share have been growing at 19% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Data#3 has increased its dividend at approximately 19% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Data#3 an attractive dividend stock, or better left on the shelf? Data#3 has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. All things considered, we are not particularly enthused about Data#3 from a dividend perspective.

So if you want to do more digging on Data#3, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with Data#3 and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.