The board of 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 September. This makes the dividend yield 2.7%, which will augment investor returns quite nicely.
Richards Packaging Income Fund Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 133% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 25%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to fall by 3.6% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 219%, which could put the dividend under pressure if earnings don't start to improve.
Richards Packaging Income Fund Has A Solid Track Record
The company has an extended history of paying stable dividends. 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. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, Richards Packaging Income Fund's earnings per share has shrunk at approximately 3.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
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 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.
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. For example, we've picked out 4 warning signs for Richards Packaging Income Fund that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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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