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It looks like IVE Group Limited (ASX:IGL) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase IVE Group's shares before the 14th of September in order to be eligible for the dividend, which will be paid on the 14th of October.
The company's upcoming dividend is AU$0.07 a share, following on from the last 12 months, when the company distributed a total of AU$0.14 per share to shareholders. Looking at the last 12 months of distributions, IVE Group has a trailing yield of approximately 8.2% on its current stock price of A$1.705. If you buy this business for its dividend, you should have an idea of whether IVE Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 11% of its free cash flow in the last year.
It's positive to see that IVE Group'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?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about IVE Group's flat earnings 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. IVE Group has delivered an average of 10% per year annual increase in its dividend, based on the past five years of dividend payments.
The Bottom Line
Has IVE Group got what it takes to maintain its dividend payments? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, IVE Group doesn't stand out from a dividend perspective. To summarise, IVE Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.
However if you're still interested in IVE Group as a potential investment, you should definitely consider some of the risks involved with IVE Group. Our analysis shows 2 warning signs for IVE Group and you should be aware of these before buying any shares.
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. 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.
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