There's A Lot To Like About Richards Packaging Income Fund's (TSE:RPI.UN) Upcoming CA$0.11 Dividend

By
Simply Wall St
Published
November 22, 2020
TSX:RPI.UN
Source: Shutterstock

Richards Packaging Income Fund (TSE:RPI.UN) is about to trade ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 27th of November will not receive this dividend, which will be paid on the 14th of December.

Richards Packaging Income Fund's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.32 to shareholders. Looking at the last 12 months of distributions, Richards Packaging Income Fund has a trailing yield of approximately 1.8% on its current stock price of CA$74.9. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Richards Packaging Income Fund

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Richards Packaging Income Fund paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Richards Packaging Income Fund generated enough free cash flow to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Richards Packaging Income Fund paid out over the last 12 months.

historic-dividend
TSX:RPI.UN Historic Dividend November 23rd 2020

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Richards Packaging Income Fund has grown its earnings rapidly, up 31% a year for the past five years. Richards Packaging Income Fund is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

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 5.3% dividend growth per year on average over the past 10 years. 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

From a dividend perspective, should investors buy or avoid Richards Packaging Income Fund? 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. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Richards Packaging Income Fund is facing. To help with this, we've discovered 1 warning sign for Richards Packaging Income Fund that you should be aware of before investing in their shares.

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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