Readers hoping to buy iFAST Corporation Ltd. (SGX:AIY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 6th of August will not receive this dividend, which will be paid on the 21st of August.
iFAST's upcoming dividend is S$0.0075 a share, following on from the last 12 months, when the company distributed a total of S$0.032 per share to shareholders. Looking at the last 12 months of distributions, iFAST has a trailing yield of approximately 2.8% on its current stock price of SGD1.13. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether iFAST has been able to grow its dividends, or if the dividend might be cut.
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. Last year, iFAST paid out 91% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see iFAST's earnings per share have been shrinking at 2.2% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. iFAST's dividend payments per share have declined at 13% per year on average over the past 4 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
From a dividend perspective, should investors buy or avoid iFAST? Not only are earnings per share shrinking, but iFAST is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
Keen to explore more data on iFAST's financial performance? Check out our visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.