Don't Race Out To Buy Sailfish Royalty Corp. (CVE:FISH) Just Because It's Going Ex-Dividend

It looks like Sailfish Royalty Corp. (CVE:FISH) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Thus, you can purchase Sailfish Royalty's shares before the 28th of September in order to receive the dividend, which the company will pay on the 16th of October.

The company's next dividend payment will be US$0.013 per share, and in the last 12 months, the company paid a total of US$0.05 per share. Last year's total dividend payments show that Sailfish Royalty has a trailing yield of 6.2% on the current share price of CA$1.09. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sailfish Royalty can afford its dividend, and if the dividend could grow.

View our latest analysis for Sailfish Royalty

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. Sailfish Royalty lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Sailfish Royalty paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see how much of its profit Sailfish Royalty paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sailfish Royalty reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sailfish Royalty's dividend payments are effectively flat on where they were two 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.

Remember, you can always get a snapshot of Sailfish Royalty's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Sailfish Royalty worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Sailfish Royalty as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 5 warning signs for Sailfish Royalty (2 are concerning!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.