Do These 3 Checks Before Buying Rogers Communications Inc. (TSE:RCI.B) For Its Upcoming Dividend

Readers hoping to buy Rogers Communications Inc. (TSE:RCI.B) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Rogers Communications' shares before the 8th of March in order to receive the dividend, which the company will pay on the 3rd of April.

The company's next dividend payment will be CA$0.50 per share, on the back of last year when the company paid a total of CA$2.00 to shareholders. Last year's total dividend payments show that Rogers Communications has a trailing yield of 3.3% on the current share price of CA$60.39. If you buy this business for its dividend, you should have an idea of whether Rogers Communications's dividend is reliable and sustainable. As a result, readers should always check whether Rogers Communications has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Rogers Communications

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Rogers Communications paid out 123% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Rogers Communications fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Rogers Communications's earnings per share have fallen at approximately 17% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Rogers Communications has delivered 1.4% dividend growth per year on average over the past 10 years.

The Bottom Line

Is Rogers Communications an attractive dividend stock, or better left on the shelf? Earnings per share have been in decline, which is not encouraging. Worse, Rogers Communications's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Rogers Communications and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 5 warning signs for Rogers Communications (1 shouldn't be ignored) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.