Should You Buy goeasy Ltd. (TSE:GSY) For Its Upcoming Dividend?
It looks like goeasy Ltd. (TSE:GSY) is about to go ex-dividend in the next 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. This means that investors who purchase goeasy's shares on or after the 24th of March will not receive the dividend, which will be paid on the 8th of April.
The company's next dividend payment will be CA$0.91 per share. Last year, in total, the company distributed CA$3.64 to shareholders. Calculating the last year's worth of payments shows that goeasy has a trailing yield of 2.7% on the current share price of CA$134.85. If you buy this business for its dividend, you should have an idea of whether goeasy's dividend is reliable and sustainable. So we need to investigate whether goeasy can afford its dividend, and if the dividend could grow.
View our latest analysis for goeasy
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. goeasy has a low and conservative payout ratio of just 17% of its income after tax. goeasy paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see goeasy's earnings have been skyrocketing, up 46% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, goeasy has lifted its dividend by approximately 27% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Should investors buy goeasy for the upcoming dividend? Companies like goeasy that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. goeasy ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
While it's tempting to invest in goeasy for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 5 warning signs we've spotted with goeasy (including 2 which are potentially serious).
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.
