Stock Analysis

E & M Computing Ltd. (TLV:EMCO) Is About To Go Ex-Dividend, And It Pays A 9.4% Yield

TASE:EMCO
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see E & M Computing Ltd. (TLV:EMCO) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 6th of December will not receive the dividend, which will be paid on the 22nd of December.

E & M Computing's upcoming dividend is ₪0.072 a share, following on from the last 12 months, when the company distributed a total of ₪0.86 per share to shareholders. Based on the last year's worth of payments, E & M Computing has a trailing yield of 9.4% on the current stock price of ₪13.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for E & M Computing

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. E & M Computing paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 19% of its free cash flow in the last year.

It's positive to see that E & M Computing's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit E & M Computing paid out over the last 12 months.

historic-dividend
TASE:EMCO Historic Dividend December 2nd 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that E & M Computing's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. E & M Computing has delivered 27% dividend growth per year on average over the past 10 years.

The Bottom Line

Is E & M Computing an attractive dividend stock, or better left on the shelf? Earnings per share have been flat and E & M Computing's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 3 warning signs for E & M Computing (1 can't be ignored) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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