Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 13th of February in order to be eligible for this dividend, which will be paid on the 6th of March.
Ritchie Bros. Auctioneers's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Based on the last year's worth of payments, Ritchie Bros. Auctioneers has a trailing yield of 1.9% on the current stock price of $42.64. If you buy this business for its dividend, you should have an idea of whether Ritchie Bros. Auctioneers's dividend is reliable and sustainable. As a result, readers should always check whether Ritchie Bros. Auctioneers has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ritchie Bros. Auctioneers paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 25% of its free cash flow as dividends, a comfortable payout level for most companies.
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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Ritchie Bros. Auctioneers earnings per share are up 6.9% per annum 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ritchie Bros. Auctioneers has delivered an average of 8.3% per year annual increase in its dividend, based on the past ten years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Has Ritchie Bros. Auctioneers got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Ritchie Bros. Auctioneers paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ritchie Bros. Auctioneers today.
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.
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.
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