Do These 3 Checks Before Buying Ricegrowers Limited (ASX:SGLLV) For Its Upcoming Dividend
Ricegrowers Limited (ASX:SGLLV) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Ricegrowers' shares before the 6th of July to receive the dividend, which will be paid on the 30th of July.
The company's next dividend payment will be AU$0.33 per share, on the back of last year when the company paid a total of AU$0.33 to shareholders. Based on the last year's worth of payments, Ricegrowers stock has a trailing yield of around 4.6% on the current share price of A$7.19. If you buy this business for its dividend, you should have an idea of whether Ricegrowers's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Ricegrowers
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Ricegrowers paid out 95% 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Ricegrowers's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see how much of its profit Ricegrowers paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Ricegrowers's 17% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ricegrowers has delivered 4.1% dividend growth per year on average over the past six years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Ricegrowers is already paying out 95% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Ricegrowers worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. What's more, Ricegrowers is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
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 Ricegrowers. Case in point: We've spotted 1 warning sign for Ricegrowers you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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