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The board of Richards Packaging Income Fund (TSE:RPI.UN) has announced that it will pay a dividend on the 12th of August, with investors receiving CA$0.11 per share. This makes the dividend yield 2.7%, which will augment investor returns quite nicely.
Richards Packaging Income Fund Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 1,289% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 23%. 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 3,085%, which could put the dividend in jeopardy if the company's earnings don't improve.
Richards Packaging Income Fund Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was CA$0.786, compared to the most recent full-year payment of CA$1.32. This means that it has been growing its distributions at 5.3% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though Richards Packaging Income Fund's EPS has declined at around 34% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Our Thoughts On Richards Packaging Income Fund's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Richards Packaging Income Fund's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Richards Packaging Income Fund is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for Richards Packaging Income Fund that investors need to be conscious of moving forward. Is Richards Packaging Income Fund not quite the opportunity you were looking for? Why not check out our selection of top 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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