Stock Analysis

Only Four Days Left To Cash In On Great-West Lifeco's (TSE:GWO) Dividend

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Great-West Lifeco Inc. (TSE:GWO) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 2nd of December, you won't be eligible to receive this dividend, when it is paid on the 31st of December.

Great-West Lifeco's upcoming dividend is CA$0.44 a share, following on from the last 12 months, when the company distributed a total of CA$1.75 per share to shareholders. Based on the last year's worth of payments, Great-West Lifeco has a trailing yield of 5.7% on the current stock price of CA$30.88. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Great-West Lifeco

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Great-West Lifeco is paying out an acceptable 63% of its profit, a common payout level among most companies.

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 the company's payout ratio, plus analyst estimates of its future dividends.

TSX:GWO Historic Dividend November 27th 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Great-West Lifeco's flat earnings 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.

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, 10 years ago, Great-West Lifeco has lifted its dividend by approximately 3.6% a year on average.

To Sum It Up

Has Great-West Lifeco got what it takes to maintain its dividend payments? Great-West Lifeco has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

However if you're still interested in Great-West Lifeco as a potential investment, you should definitely consider some of the risks involved with Great-West Lifeco. Case in point: We've spotted 1 warning sign for Great-West Lifeco you should be aware of.

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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