Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 27th of August in order to be eligible for this dividend, which will be paid on the 18th of September.
Ritchie Bros. Auctioneers's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.80 to shareholders. Based on the last year's worth of payments, Ritchie Bros. Auctioneers stock has a trailing yield of around 2.0% on the current share price of $39.24. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's 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. Ritchie Bros. Auctioneers paid out 61% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Ritchie Bros. Auctioneers generated enough free cash flow to afford its dividend. Dividends consumed 50% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Ritchie Bros. Auctioneers, with earnings per share up 6.5% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ritchie Bros. Auctioneers has delivered 8.3% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Ritchie Bros. Auctioneers for the upcoming dividend? Earnings per share have been growing modestly and Ritchie Bros. Auctioneers paid out a bit over half of its earnings and free cash flow last year. To summarise, Ritchie Bros. Auctioneers looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Ritchie Bros. Auctioneers? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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