Adcorp Holdings Limited (JSE:ADR) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Adcorp Holdings Limited (JSE:ADR) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Adcorp Holdings' shares on or after the 13th of August will not receive the dividend, which will be paid on the 18th of August.

The company's next dividend payment will be R00.500181 per share. Last year, in total, the company distributed R0.63 to shareholders. Calculating the last year's worth of payments shows that Adcorp Holdings has a trailing yield of 9.5% on the current share price of R06.69. If you buy this business for its dividend, you should have an idea of whether Adcorp Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Adcorp Holdings has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Adcorp Holdings paid out a comfortable 47% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 12% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Adcorp Holdings

Click here to see how much of its profit Adcorp Holdings 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. That's why it's comforting to see Adcorp Holdings's earnings have been skyrocketing, up 68% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Adcorp Holdings has seen its dividend decline 8.1% per annum on average over the past 10 years, which is not great to see. Adcorp Holdings 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Adcorp Holdings? It's great that Adcorp Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Adcorp Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in Adcorp Holdings for the dividends alone, you should always be mindful of the risks involved. For example, Adcorp Holdings has 3 warning signs (and 1 which is significant) we think you should know about.

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.