Don't Race Out To Buy River and Mercantile Group PLC (LON:RIV) Just Because It's Going Ex-Dividend

By
Simply Wall St
Published
March 20, 2021
LSE:RIV
Source: Shutterstock

It looks like River and Mercantile Group PLC (LON:RIV) is about to go ex-dividend in the next three days. You can purchase shares before the 25th of March in order to receive the dividend, which the company will pay on the 15th of April.

River and Mercantile Group's next dividend payment will be UK£0.039 per share. Last year, in total, the company distributed UK£0.097 to shareholders. Calculating the last year's worth of payments shows that River and Mercantile Group has a trailing yield of 4.5% on the current share price of £2.14. If you buy this business for its dividend, you should have an idea of whether River and Mercantile Group's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for River and Mercantile Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. River and Mercantile Group distributed an unsustainably high 165% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

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

historic-dividend
LSE:RIV Historic Dividend March 21st 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see River and Mercantile Group's earnings per share have dropped 12% a year over the past 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. In the last seven years, River and Mercantile Group has lifted its dividend by approximately 11% a year on average. 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. River and Mercantile Group 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.

The Bottom Line

Is River and Mercantile Group an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and River and Mercantile Group 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. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that being said, if you're still considering River and Mercantile Group as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 3 warning signs for River and Mercantile Group you should be aware of.

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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.