Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see IGM Financial Inc. (TSE:IGM) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 27th of September will not receive the dividend, which will be paid on the 31st of October.
IGM Financial's next dividend payment will be CA$0.6 per share. Last year, in total, the company distributed CA$2.3 to shareholders. Calculating the last year's worth of payments shows that IGM Financial has a trailing yield of 5.9% on the current share price of CA$38.08. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. IGM Financial paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that IGM Financial's earnings per share have remained effectively flat 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. IGM Financial has delivered an average of 0.9% per year annual increase in its dividend, based on the past ten years of dividend payments.
The Bottom Line
Should investors buy IGM Financial for the upcoming dividend? IGM Financial has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
Ever wonder what the future holds for IGM Financial? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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 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.