Is It Smart To Buy Richards Packaging Income Fund (TSE:RPI.UN) Before It Goes Ex-Dividend?

It looks like Richards Packaging Income Fund (TSE:RPI.UN) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Richards Packaging Income Fund's shares before the 28th of September in order to receive the dividend, which the company will pay on the 13th of October.

The company's next dividend payment will be CA$0.11 per share, and in the last 12 months, the company paid a total of CA$1.32 per share. Looking at the last 12 months of distributions, Richards Packaging Income Fund has a trailing yield of approximately 4.1% on its current stock price of CA$32.4. 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 Richards Packaging Income Fund

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Richards Packaging Income Fund paid out a comfortable 35% of its profit last year. A useful secondary check can be to evaluate whether Richards Packaging Income Fund generated enough free cash flow to afford its dividend. The good news is it paid out just 22% of its free cash flow in the last year.

It's positive to see that Richards Packaging Income Fund'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 Richards Packaging Income Fund paid out over the last 12 months.

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. Fortunately for readers, Richards Packaging Income Fund's earnings per share have been growing at 20% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Richards Packaging Income Fund has delivered an average of 5.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is Richards Packaging Income Fund worth buying for its dividend? Richards Packaging Income Fund has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Richards Packaging Income Fund, and we would prioritise taking a closer look at it.

Want to learn more about Richards Packaging Income Fund's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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.