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Here's Why We're Wary Of Buying EJF Investments' (LON:EJFI) For Its Upcoming Dividend

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Simply Wall St
·3 min read
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see EJF Investments Limited (LON:EJFI) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 4th of February in order to receive the dividend, which the company will pay on the 26th of February.

EJF Investments's upcoming dividend is UK£0.027 a share, following on from the last 12 months, when the company distributed a total of UK£0.11 per share to shareholders. Looking at the last 12 months of distributions, EJF Investments has a trailing yield of approximately 8.5% on its current stock price of £1.265. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for EJF Investments

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. EJF Investments paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run.

Click here to see how much of its profit EJF Investments paid out over the last 12 months.


Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. EJF Investments was unprofitable last year, and sadly its loss per share worsened by 166% on the previous year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. EJF Investments has delivered an average of 2.7% per year annual increase in its dividend, based on the past four years of dividend payments.

We update our analysis on EJF Investments every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has EJF Investments got what it takes to maintain its dividend payments? It's definitely not great to see that it paid a dividend despite reporting a loss last year. Worse, the general trend in its earnings looks negative in recent times. EJF Investments doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with EJF Investments. We've identified 3 warning signs with EJF Investments (at least 2 which make us uncomfortable), and understanding them should be part of your investment process.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.