Why It Might Not Make Sense To Buy YeboYethu (RF) Limited (JSE:YYLBEE) For Its Upcoming Dividend

YeboYethu (RF) Limited (JSE:YYLBEE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase YeboYethu (RF)'s shares on or after the 3rd of July, you won't be eligible to receive the dividend, when it is paid on the 8th of July.

The company's upcoming dividend is R00.96 a share, following on from the last 12 months, when the company distributed a total of R1.83 per share to shareholders. Looking at the last 12 months of distributions, YeboYethu (RF) has a trailing yield of approximately 8.5% on its current stock price of R021.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether YeboYethu (RF) has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for YeboYethu (RF)

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. YeboYethu (RF) reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

Click here to see how much of its profit YeboYethu (RF) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. YeboYethu (RF) was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, YeboYethu (RF) has increased its dividend at approximately 7.3% a year on average.

Get our latest analysis on YeboYethu (RF)'s balance sheet health here.

The Bottom Line

Has YeboYethu (RF) got what it takes to maintain its dividend payments? It's definitely not great to see that it paid a dividend despite reporting a loss last year. Worse, the general trend in its earnings looks negative in recent times. YeboYethu (RF) doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

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 YeboYethu (RF). To that end, you should learn about the 5 warning signs we've spotted with YeboYethu (RF) (including 2 which make us uncomfortable).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com