Do These 3 Checks Before Buying Rights and Issues Investment Trust Public Limited Company (LON:RIII) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Rights and Issues Investment Trust Public Limited Company (LON:RIII) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 4th of March to receive the dividend, which will be paid on the 1st of April.

Rights and Issues Investment Trust's next dividend payment will be UK£0.21 per share. Last year, in total, the company distributed UK£0.32 to shareholders. Based on the last year's worth of payments, Rights and Issues Investment Trust has a trailing yield of 1.4% on the current stock price of £22.5. If you buy this business for its dividend, you should have an idea of whether Rights and Issues Investment Trust's dividend is reliable and sustainable. So we need to investigate whether Rights and Issues Investment Trust can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Rights and Issues Investment Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 202% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see how much of its profit Rights and Issues Investment Trust paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Rights and Issues Investment Trust's earnings per share have plummeted approximately 53% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Rights and Issues Investment Trust has delivered an average of 2.4% 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. Rights and Issues Investment Trust is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Has Rights and Issues Investment Trust got what it takes to maintain its dividend payments? Earnings per share are in decline and Rights and Issues Investment Trust is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Rights and Issues Investment Trust doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in Rights and Issues Investment Trust despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 3 warning signs for Rights and Issues Investment Trust (1 is significant!) that you ought to be aware of before buying the 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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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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