It Might Not Be A Great Idea To Buy Rights and Issues Investment Trust Public Limited Company (LON:RIII) For Its Next Dividend

Rights and Issues Investment Trust Public Limited Company (LON:RIII) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is two business days 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. Accordingly, Rights and Issues Investment Trust investors that purchase the stock on or after the 28th of August will not receive the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be UK£0.1225 per share, on the back of last year when the company paid a total of UK£0.44 to shareholders. Last year's total dividend payments show that Rights and Issues Investment Trust has a trailing yield of 2.0% on the current share price of UK£22.05. 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.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Rights and Issues Investment Trust 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.

Check out our latest analysis for Rights and Issues Investment Trust

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?

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. Rights and Issues Investment Trust reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Rights and Issues Investment Trust has lifted its dividend by approximately 38% a year on average.

We update our analysis on Rights and Issues Investment Trust every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has Rights and Issues Investment Trust got what it takes to maintain its dividend payments? It's hard to get past the idea of Rights and Issues Investment Trust paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. 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.

With that in mind though, if the poor dividend characteristics of Rights and Issues Investment Trust don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 2 warning signs for Rights and Issues Investment Trust you should know about.

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.