Here's Why We're Wary Of Buying Rogers Communications' (TSE:RCI.B) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Rogers Communications Inc. (TSE:RCI.B) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Rogers Communications' shares on or after the 8th of March will not receive the dividend, which will be paid on the 3rd of April.
The company's next dividend payment will be CA$0.50 per share. Last year, in total, the company distributed CA$2.00 to shareholders. Last year's total dividend payments show that Rogers Communications has a trailing yield of 3.3% on the current share price of CA$60.39. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Rogers Communications can afford its dividend, and if the dividend could grow.
View our latest analysis for Rogers Communications
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Rogers Communications distributed an unsustainably high 123% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Rogers Communications fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Rogers Communications's earnings per share have dropped 17% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Rogers Communications has lifted its dividend by approximately 1.4% a year on average.
The Bottom Line
Has Rogers Communications got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. What's more, Rogers Communications is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Rogers Communications and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 5 warning signs with Rogers Communications (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
