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Dividend Investors: Don't Be Too Quick To Buy Sailfish Royalty Corp. (CVE:FISH) For Its Upcoming Dividend
It looks like Sailfish Royalty Corp. (CVE:FISH) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. This means that investors who purchase Sailfish Royalty's shares on or after the 31st of December will not receive the dividend, which will be paid on the 15th of January.
The company's next dividend payment will be US$0.0125 per share. Last year, in total, the company distributed US$0.05 to shareholders. Looking at the last 12 months of distributions, Sailfish Royalty has a trailing yield of approximately 5.2% on its current stock price of CA$1.38. 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 investigate whether Sailfish Royalty can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Sailfish Royalty
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. An unusually high payout ratio of 261% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 10,540% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Cash is slightly more important than profit from a dividend perspective, but given Sailfish Royalty's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see how much of its profit Sailfish Royalty paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sailfish Royalty's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 33% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sailfish Royalty's dividend payments are broadly unchanged compared to where they were three years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
To Sum It Up
Should investors buy Sailfish Royalty for the upcoming dividend? Not only are earnings per share declining, but Sailfish Royalty is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. Bottom line: Sailfish Royalty has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Sailfish Royalty. Be aware that Sailfish Royalty is showing 4 warning signs in our investment analysis, and 2 of those are significant...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
About TSXV:FISH
Sailfish Royalty
Engages in the acquisition of precious metals royalty and streaming agreements.
Adequate balance sheet slight.