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Don't Race Out To Buy Great-West Lifeco Inc. (TSE:GWO) Just Because It's Going Ex-Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Great-West Lifeco Inc. (TSE:GWO) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 2nd of March in order to receive the dividend, which the company will pay on the 31st of March.

Great-West Lifeco's next dividend payment will be CA$0.44 per share, on the back of last year when the company paid a total of CA$1.75 to shareholders. Based on the last year's worth of payments, Great-West Lifeco stock has a trailing yield of around 5.3% on the current share price of CA$32.94. If you buy this business for its dividend, you should have an idea of whether Great-West Lifeco's dividend is reliable and sustainable. So we need to investigate whether Great-West Lifeco can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Great-West Lifeco

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Great-West Lifeco is paying out an acceptable 66% of its profit, a common payout level among most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

TSX:GWO Historical Dividend Yield, February 26th 2020

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 Great-West Lifeco's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Great-West Lifeco has delivered an average of 3.6% per year annual increase in its dividend, based on the past ten years of dividend payments.

To Sum It Up

Has Great-West Lifeco got what it takes to maintain its dividend payments? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Ever wonder what the future holds for Great-West Lifeco? See what the ten 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.