RIAS A/S (CPH:RIAS B) stock is about to trade ex-dividend in 3 days time. Ex-dividend means that investors that purchase the stock on or after the 30th of January will not receive this dividend, which will be paid on the 3rd of February.
RIAS's next dividend payment will be ø25.00 per share. Last year, in total, the company distributed ø25.00 to shareholders. Looking at the last 12 months of distributions, RIAS has a trailing yield of approximately 5.2% on its current stock price of DKK480. 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 RIAS has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that RIAS's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about RIAS's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 79% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, RIAS could be signalling that its future growth prospects are thin.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, RIAS has lifted its dividend by approximately 17% a year on average.
Should investors buy RIAS for the upcoming dividend? Earnings per share have been flat and RIAS's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. To summarise, RIAS looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Want to learn more about RIAS? Here's a visualisation of its historical rate of 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.