Should Income Investors Look At Just Life Group Limited (NZSE:JLG) Before Its Ex-Dividend?
Readers hoping to buy Just Life Group Limited (NZSE:JLG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 5th of March in order to receive the dividend, which the company will pay on the 13th of March.
Just Life Group's next dividend payment will be NZ$0.012 per share, and in the last 12 months, the company paid a total of NZ$0.022 per share. Based on the last year's worth of payments, Just Life Group has a trailing yield of 2.9% on the current stock price of NZ$0.77. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Just Life Group can afford its dividend, and if the dividend could grow.
View our latest analysis for Just Life Group
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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Luckily it paid out just 24% of its free cash flow last year.
It's positive to see that Just Life Group'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 Just Life Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Just Life Group's earnings per share have risen 19% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Just Life Group's dividend payments per share have declined at 4.8% per year on average over the past ten years, which is uninspiring. Just Life Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Is Just Life Group an attractive dividend stock, or better left on the shelf? Just Life Group's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Just Life Group, and we would prioritise taking a closer look at it.
Want to learn more about Just Life Group's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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