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Do These 3 Checks Before Buying Input Capital Corp. (CVE:INP) For Its Upcoming Dividend

Simply Wall St

Input Capital Corp. (CVE:INP) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 27th of September in order to be eligible for this dividend, which will be paid on the 15th of October.

Input Capital's next dividend payment will be CA$0.01 per share. Last year, in total, the company distributed CA$0.04 to shareholders. Calculating the last year's worth of payments shows that Input Capital has a trailing yield of 5.3% on the current share price of CA$0.75. 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 Input Capital can afford its dividend, and if the dividend could grow.

View our latest analysis for Input Capital

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Input Capital's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 12% of its free cash flow last year.

Click here to see how much of its profit Input Capital paid out over the last 12 months.

TSXV:INP Historical Dividend Yield, September 22nd 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Input Capital reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Input Capital's dividend payments are effectively flat on where they were three years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Get our latest analysis on Input Capital's balance sheet health here.

The Bottom Line

Is Input Capital worth buying for its dividend? It's hard to get used to Input Capital paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Input Capital is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Keen to explore more data on Input Capital's financial performance? Check out our 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. Thank you for reading.