It looks like Stingray Group Inc. (TSE:RAY.A) is about to go ex-dividend in the next three 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. Accordingly, Stingray Group investors that purchase the stock on or after the 28th of May will not receive the dividend, which will be paid on the 15th of June.
The company's next dividend payment will be CA$0.075 per share. Last year, in total, the company distributed CA$0.30 to shareholders. Last year's total dividend payments show that Stingray Group has a trailing yield of 4.3% on the current share price of CA$6.99. If you buy this business for its dividend, you should have an idea of whether Stingray Group's dividend is reliable and sustainable. So we need to investigate whether Stingray Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Stingray Group paid out 90% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Stingray Group's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Stingray Group's earnings per share have risen 11% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Stingray Group has lifted its dividend by approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Stingray Group an attractive dividend stock, or better left on the shelf? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Stingray Group's paying out such a high percentage of its profit. To summarise, Stingray Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.
While it's tempting to invest in Stingray Group for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Stingray Group you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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