Rights and Issues Investment Trust (LON:RIII) Has Announced A Dividend Of £0.1225

The board of Rights and Issues Investment Trust Public Limited Company (LON:RIII) has announced that it will pay a dividend of £0.1225 per share on the 26th of September. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

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Rights and Issues Investment Trust's Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. Even though Rights and Issues Investment Trust isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could fall by 7.7% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Check out our latest analysis for Rights and Issues Investment Trust

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from £0.018 total annually to £0.44. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Rights and Issues Investment Trust has seen earnings per share falling at 7.7% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Rights and Issues Investment Trust's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Rights and Issues Investment Trust's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Rights and Issues Investment Trust that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.