Quarterhill Inc. (TSE:QTRH) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 12th of September to receive the dividend, which will be paid on the 4th of October.
Quarterhill's next dividend payment will be US$0.013 per share, on the back of last year when the company paid a total of US$0.037 to shareholders. Based on the last year's worth of payments, Quarterhill has a trailing yield of 2.6% on the current stock price of CA$1.87. If you buy this business for its dividend, you should have an idea of whether Quarterhill's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Quarterhill paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Quarterhill didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 21% of its free cash flow in the last year.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Quarterhill 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. Quarterhill has seen its dividend decline 1.3% per annum on average over the past 10 years, which is not great to see.
We update our analysis on Quarterhill every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Quarterhill worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Quarterhill has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Wondering what the future holds for Quarterhill? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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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.