Joyce Corporation Ltd (ASX:JYC) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 8th of November in order to receive the dividend, which the company will pay on the 18th of November.
Joyce's next dividend payment will be AU$0.05 per share, on the back of last year when the company paid a total of AU$0.1 to shareholders. Looking at the last 12 months of distributions, Joyce has a trailing yield of approximately 7.3% on its current stock price of A$1.595. If you buy this business for its dividend, you should have an idea of whether Joyce's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Joyce paid out 95% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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 distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Joyce's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in 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. 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's why it's comforting to see Joyce's earnings have been skyrocketing, up 56% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Joyce has lifted its dividend by approximately 15% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Should investors buy Joyce for the upcoming dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Joyce is paying out so much of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Want to learn more about Joyce? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.