We Wouldn't Be Too Quick To Buy Imperial Equities Inc. (CVE:IEI) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Imperial Equities Inc. (CVE:IEI) is about to go ex-dividend in just 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Imperial Equities' shares before the 17th of January to receive the dividend, which will be paid on the 3rd of February.

The company's next dividend payment will be CA$0.02 per share. Last year, in total, the company distributed CA$0.08 to shareholders. Looking at the last 12 months of distributions, Imperial Equities has a trailing yield of approximately 2.3% on its current stock price of CA$3.55. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Imperial Equities

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. Imperial Equities reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Imperial Equities didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 7.7% of its free cash flow in the last year.

Click here to see how much of its profit Imperial Equities 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. Imperial Equities was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Imperial Equities has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Get our latest analysis on Imperial Equities's balance sheet health here.

The Bottom Line

Has Imperial Equities got what it takes to maintain its dividend payments? It's hard to get used to Imperial Equities paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Imperial Equities is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Imperial Equities despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Imperial Equities is showing 5 warning signs in our investment analysis, and 3 of those are significant...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.