Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ramsdens Holdings PLC (LON:RFX) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of August will not receive this dividend, which will be paid on the 20th of September.
Ramsdens Holdings's next dividend payment will be UK£0.048 per share. Last year, in total, the company distributed UK£0.072 to shareholders. Looking at the last 12 months of distributions, Ramsdens Holdings has a trailing yield of approximately 3.9% on its current stock price of £1.865. If you buy this business for its dividend, you should have an idea of whether Ramsdens Holdings'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 out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ramsdens Holdings paid out a comfortable 43% of its profit last year.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Ramsdens Holdings's earnings have been skyrocketing, up 35% per annum for the past three years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 2 years, Ramsdens Holdings has increased its dividend at approximately 66% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Ramsdens Holdings for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Ramsdens Holdings more closely.
Keen to explore more data on Ramsdens Holdings's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.