Don't Race Out To Buy Argo Investments Limited (ASX:ARG) Just Because It's Going Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Argo Investments Limited (ASX:ARG) is about to trade ex-dividend in the next 4 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Argo Investments' shares on or after the 16th of February, you won't be eligible to receive the dividend, when it is paid on the 8th of March.
The company's next dividend payment will be AU$0.165 per share, on the back of last year when the company paid a total of AU$0.34 to shareholders. Based on the last year's worth of payments, Argo Investments stock has a trailing yield of around 3.8% on the current share price of AU$9.14. 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 Argo Investments has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Argo Investments
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Argo Investments paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see how much of its profit Argo Investments paid out over the last 12 months.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Argo Investments'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. Argo Investments has delivered an average of 2.7% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Is Argo Investments an attractive dividend stock, or better left on the shelf? While we're glad to see that its earnings aren't shrinking, we're not enamored of the fact that it's paying out 100% of last year's earnings. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
With that in mind though, if the poor dividend characteristics of Argo Investments don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Argo Investments you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
