Richards Packaging Income Fund (TSE:RPI.UN) Is Paying Out A Dividend Of CA$0.11

Richards Packaging Income Fund's (TSE:RPI.UN) investors are due to receive a payment of CA$0.11 per share on 12th of August. Based on this payment, the dividend yield on the company's stock will be 2.7%, which is an attractive boost to shareholder returns.

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. Before making this announcement, Richards Packaging Income Fund's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

If the company can't turn things around, EPS could fall by 33.9% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 3,085%, which is definitely a bit high to be sustainable going forward.

Richards Packaging Income Fund Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from CA$0.786 total annually to CA$1.32. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Richards Packaging Income Fund's earnings per share has shrunk at 34% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On Richards Packaging Income Fund's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Richards Packaging Income Fund's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Richards Packaging Income Fund is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Richards Packaging Income Fund that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated 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.