Is It Smart To Buy Lorne Park Capital Partners Inc. (CVE:LPC) Before It Goes Ex-Dividend?

Lorne Park Capital Partners Inc. (CVE:LPC) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Lorne Park Capital Partners' shares before the 16th of January to receive the dividend, which will be paid on the 31st of January.

The company's next dividend payment will be CA$0.007 per share. Last year, in total, the company distributed CA$0.028 to shareholders. Last year's total dividend payments show that Lorne Park Capital Partners has a trailing yield of 2.2% on the current share price of CA$1.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Lorne Park Capital Partners can afford its dividend, and if the dividend could grow.

View our latest analysis for Lorne Park Capital Partners

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Lorne Park Capital Partners paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Lorne Park Capital Partners has grown its earnings rapidly, up 45% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, Lorne Park Capital Partners has lifted its dividend by approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Lorne Park Capital Partners? Earnings per share are growing nicely, and Lorne Park Capital Partners is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Lorne Park Capital Partners ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

While it's tempting to invest in Lorne Park Capital Partners for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 4 warning signs for Lorne Park Capital Partners (of which 1 is concerning!) you should know about.

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

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.