Richards Packaging Income Fund (TSE:RPI.UN) Has Affirmed Its Dividend Of CA$0.11

Richards Packaging Income Fund (TSE:RPI.UN) has announced that it will pay a dividend of CA$0.11 per share on the 13th of January. This means the annual payment is 3.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Richards Packaging Income Fund

Richards Packaging Income Fund Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 78% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS could expand by 5.6% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 116%, which probably can't continue without starting to put some pressure on the balance sheet.

Richards Packaging Income Fund Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$0.786 in 2012, and the most recent fiscal year payment was CA$1.32. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Richards Packaging Income Fund has grown earnings per share at 5.6% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Richards Packaging Income Fund that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.