Retailors Ltd (TLV:RTLS) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Retailors Ltd (TLV:RTLS) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Retailors' shares on or after the 10th of September, you won't be eligible to receive the dividend, when it is paid on the 26th of September.

The company's next dividend payment will be ₪1.42 per share. Last year, in total, the company distributed ₪2.18 to shareholders. Looking at the last 12 months of distributions, Retailors has a trailing yield of approximately 2.9% on its current stock price of ₪74.51. If you buy this business for its dividend, you should have an idea of whether Retailors's dividend is reliable and sustainable. So we need to investigate whether Retailors can afford its dividend, and if the dividend could grow.

See our latest analysis for Retailors

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Retailors paid out 72% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Retailors generated enough free cash flow to afford its dividend. The company paid out 104% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Retailors does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Retailors paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Retailors's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Retailors has grown its earnings rapidly, up 28% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Given that Retailors has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Is Retailors worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Retailors paid out a much higher percentage of its free cash flow, which makes us uncomfortable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Retailors as a potential investment, you should definitely consider some of the risks involved with Retailors. In terms of investment risks, we've identified 1 warning sign with Retailors and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.