Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see QANTM Intellectual Property Limited (ASX:QIP) is about to trade ex-dividend in the next three 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. In other words, investors can purchase QANTM Intellectual Property's shares before the 5th of September in order to be eligible for the dividend, which will be paid on the 6th of October.
The company's next dividend payment will be AU$0.035 per share. Last year, in total, the company distributed AU$0.065 to shareholders. Last year's total dividend payments show that QANTM Intellectual Property has a trailing yield of 6.3% on the current share price of A$1.025. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. QANTM Intellectual Property distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 (58%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while QANTM Intellectual Property's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that QANTM Intellectual Property's earnings per share have remained effectively flat 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. QANTM Intellectual Property's dividend payments per share have declined at 1.7% per year on average over the past six years, which is uninspiring.
Has QANTM Intellectual Property got what it takes to maintain its dividend payments? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Additionally, QANTM Intellectual Property is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: QANTM Intellectual Property has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you're still considering QANTM Intellectual Property as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 4 warning signs for QANTM Intellectual Property that we strongly recommend you have a look at before investing in the company.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
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