Stock Analysis

Goodfellow Inc. (TSE:GDL) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

TSX:GDL
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It looks like Goodfellow Inc. (TSE:GDL) is about to go ex-dividend in the next four days. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 19th of March.

Goodfellow's next dividend payment will be CA$0.30 per share, on the back of last year when the company paid a total of CA$0.50 to shareholders. Based on the last year's worth of payments, Goodfellow has a trailing yield of 5.9% on the current stock price of CA$10.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Goodfellow

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Goodfellow's payout ratio is modest, at just 34% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Goodfellow's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

historic-dividend
TSX:GDL Historic Dividend February 27th 2021

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Goodfellow earnings per share are up 9.7% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Goodfellow's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Is Goodfellow worth buying for its dividend? Earnings per share have been growing moderately, and Goodfellow is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Goodfellow is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Goodfellow has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for Goodfellow and you should be aware of these before buying any shares.

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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