Readers hoping to buy Euromoney Institutional Investor PLC (LON:ERM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 26th of November will not receive the dividend, which will be paid on the 16th of February.
Euromoney Institutional Investor's next dividend payment will be UK£0.11 per share, and in the last 12 months, the company paid a total of UK£0.11 per share. Based on the last year's worth of payments, Euromoney Institutional Investor stock has a trailing yield of around 1.1% on the current share price of £9.96. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Euromoney Institutional Investor paid out a comfortable 40% of its profit last year. 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 paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Euromoney Institutional Investor'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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Euromoney Institutional Investor's earnings per share have dropped 19% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Euromoney Institutional Investor has seen its dividend decline 4.5% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
The Bottom Line
Has Euromoney Institutional Investor got what it takes to maintain its dividend payments? Earnings per share have fallen significantly, although at least Euromoney Institutional Investor paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. To summarise, Euromoney Institutional Investor looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Euromoney Institutional Investor? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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