Regis Healthcare Limited (ASX:REG) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 11th of September will not receive this dividend, which will be paid on the 26th of September.
Regis Healthcare's next dividend payment will be AU$0.071 per share. Last year, in total, the company distributed AU$0.14 to shareholders. Calculating the last year's worth of payments shows that Regis Healthcare has a trailing yield of 5.1% on the current share price of A$2.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Regis Healthcare can afford its dividend, and if the dividend could grow.
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. Its dividend payout ratio is 90% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. It's encouraging to see Regis Healthcare has grown its earnings rapidly, up 114% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Regis Healthcare's dividend payments per share have declined at 5.2% per year on average over the past 4 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Should investors buy Regis Healthcare for the upcoming dividend? Regis Healthcare's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Regis Healthcare looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Regis Healthcare? See what analysts 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.
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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. Thank you for reading.