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Is It Smart To Buy Recipe Unlimited Corporation (TSE:RECP) Before It Goes Ex-Dividend?

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Recipe Unlimited Corporation (TSE:RECP) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 29th of August in order to receive the dividend, which the company will pay on the 13th of September.

Recipe Unlimited's upcoming dividend is CA$0.11 a share, following on from the last 12 months, when the company distributed a total of CA$0.45 per share to shareholders. Based on the last year's worth of payments, Recipe Unlimited stock has a trailing yield of around 1.8% on the current share price of CA$24.68. 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! As a result, readers should always check whether Recipe Unlimited has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Recipe Unlimited

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. Recipe Unlimited paid out a comfortable 38% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

TSX:RECP Historical Dividend Yield, August 24th 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Recipe Unlimited, with earnings per share up 4.4% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 4 years, Recipe Unlimited has increased its dividend at approximately 5.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Recipe Unlimited worth buying for its dividend? Earnings per share growth has been growing somewhat, and Recipe Unlimited is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Recipe Unlimited is halfway there. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Recipe Unlimited? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.