Is It Smart To Buy RBG Holdings plc (LON:RBGP) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
July 25, 2021
AIM:RBGP
Source: Shutterstock

It looks like RBG Holdings plc (LON:RBGP) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase RBG Holdings' shares on or after the 29th of July, you won't be eligible to receive the dividend, when it is paid on the 27th of August.

The company's next dividend payment will be UK£0.02 per share, on the back of last year when the company paid a total of UK£0.03 to shareholders. Looking at the last 12 months of distributions, RBG Holdings has a trailing yield of approximately 2.8% on its current stock price of £1.405. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for RBG Holdings

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. That's why it's good to see RBG Holdings paying out a modest 40% of its earnings. 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 paid out 23% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
AIM:RBGP Historic Dividend July 25th 2021

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at RBG Holdings, with earnings per share up 7.9% on average over the last three years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. RBG Holdings has seen its dividend decline 2.4% per annum on average over the past two years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is RBG Holdings an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and RBG Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and RBG Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in RBG Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for RBG Holdings that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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