- Oops!Something went wrong.Please try again later.
Richards Packaging Income Fund (TSE:RPI.UN) has announced that it will pay a dividend of CA$0.11 per share on the 14th of July. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.
Richards Packaging Income Fund Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Richards Packaging Income Fund's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
If the company can't turn things around, EPS could fall by 33.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 3,095%, which could put the dividend in jeopardy if the company's earnings don't improve.
Richards Packaging Income Fund Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the first annual payment was CA$0.79, compared to the most recent full-year payment of CA$1.32. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Richards Packaging Income Fund's earnings per share has shrunk at 34% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Our Thoughts On Richards Packaging Income Fund's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 4 warning signs for Richards Packaging Income Fund that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.