Don't Buy Evertz Technologies Limited (TSE:ET) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Evertz Technologies Limited (TSE:ET) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 18th of March will not receive this dividend, which will be paid on the 25th of March.

Evertz Technologies's upcoming dividend is CA$0.18 a share, following on from the last 12 months, when the company distributed a total of CA$0.72 per share to shareholders. Last year's total dividend payments show that Evertz Technologies has a trailing yield of 4.8% on the current share price of CA$14.9. If you buy this business for its dividend, you should have an idea of whether Evertz Technologies's dividend is reliable and sustainable. So we need to investigate whether Evertz Technologies can afford its dividend, and if the dividend could grow.

See our latest analysis for Evertz Technologies

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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Evertz Technologies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Evertz Technologies's earnings per share have fallen at approximately 6.6% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Evertz Technologies has delivered an average of 8.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Evertz Technologies is already paying out 86% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Has Evertz Technologies got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Evertz Technologies from a dividend perspective.

If you want to look further into Evertz Technologies, it's worth knowing the risks this business faces. Case in point: We've spotted 2 warning signs for Evertz Technologies 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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This article by Simply Wall St is general in nature. 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.
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