Should You Buy Gamehost Inc. (TSE:GH) For Its Upcoming Dividend?
It looks like Gamehost Inc. (TSE:GH) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Gamehost's shares on or after the 27th of March, you won't be eligible to receive the dividend, when it is paid on the 15th of April.
The company's next dividend payment will be CA$0.04 per share, and in the last 12 months, the company paid a total of CA$0.48 per share. Based on the last year's worth of payments, Gamehost stock has a trailing yield of around 5.0% on the current share price of CA$9.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Gamehost has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Gamehost
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. Gamehost paid out a comfortable 39% of its profit last year. 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. Fortunately, it paid out only 35% of its free cash flow in the past year.
It's positive to see that Gamehost'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.
Click here to see how much of its profit Gamehost paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Gamehost earnings per share are up 7.3% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Gamehost's dividend payments per share have declined at 5.9% per year on average over the past 10 years, which is uninspiring. Gamehost is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Gamehost an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Gamehost is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Gamehost is halfway there. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Gamehost is facing. For example, we've found 2 warning signs for Gamehost that we recommend you consider before investing in the business.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
