Don't Buy RSL Electronics Ltd. (TLV:RSEL) For Its Next Dividend Without Doing These Checks

Readers hoping to buy RSL Electronics Ltd. (TLV:RSEL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase RSL Electronics' shares on or after the 18th of February will not receive the dividend, which will be paid on the 27th of February.

The company's next dividend payment will be ₪0.4939405 per share. Last year, in total, the company distributed ₪0.25 to shareholders. Based on the last year's worth of payments, RSL Electronics has a trailing yield of 3.8% on the current stock price of ₪13.07. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 RSL Electronics

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. RSL Electronics is paying out an acceptable 67% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether RSL Electronics generated enough free cash flow to afford its dividend.

Click here to see how much of its profit RSL Electronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see RSL Electronics earnings per share are up 2.4% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. RSL Electronics has delivered an average of 14% per year annual increase in its dividend, based on the past two years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Should investors buy RSL Electronics for the upcoming dividend? RSL Electronics is paying out a reasonable percentage of its income and an uncomfortably high -83% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with RSL Electronics. For example, we've found 5 warning signs for RSL Electronics (1 is a bit concerning!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.