Dividend Investors: Don't Be Too Quick To Buy Decisive Dividend Corporation (CVE:DE) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Decisive Dividend Corporation (CVE:DE) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. In other words, investors can purchase Decisive Dividend's shares before the 31st of October in order to be eligible for the dividend, which will be paid on the 15th of November.

The company's next dividend payment will be CA$0.045 per share, on the back of last year when the company paid a total of CA$0.54 to shareholders. Calculating the last year's worth of payments shows that Decisive Dividend has a trailing yield of 7.8% on the current share price of CA$6.88. 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.

Check out our latest analysis for Decisive Dividend

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, Decisive Dividend paid out 217% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Decisive Dividend paid out more free cash flow than it generated - 157%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

As Decisive Dividend's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Decisive Dividend has grown its earnings rapidly, up 28% a year for the past five years. Earnings per share have been growing rapidly, but the company is paying out a dividend that looks unsustainably high. Companies that pay out more than they earned while growing rapidly, can find themselves short of cash in a few years when growth slows.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Decisive Dividend has delivered 9.4% dividend growth per year on average over the past nine years. 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 Decisive Dividend? While it's nice to see earnings per share growing, we're curious about how Decisive Dividend intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Decisive Dividend as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 5 warning signs for Decisive Dividend (2 are a bit unpleasant!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.