Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Logistec Corporation (TSE:LGT.B) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 24th of September, you won't be eligible to receive this dividend, when it is paid on the 9th of October.
Logistec's next dividend payment will be CA$0.10 per share, on the back of last year when the company paid a total of CA$0.41 to shareholders. Looking at the last 12 months of distributions, Logistec has a trailing yield of approximately 1.2% on its current stock price of CA$34.25. 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. Logistec paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 6.5% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Logistec'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 fall far enough, the company could be forced to cut its dividend. So we're not too excited that Logistec's earnings are down 2.1% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Logistec has delivered 9.2% dividend growth per year on average over the past 10 years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Logistec? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Logistec from a dividend perspective.
In light of that, while Logistec has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 2 warning signs we've spotted with Logistec (including 1 which can't be ignored).
If you're in the market for dividend stocks, we recommend checking our list of top 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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