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Is It Smart To Buy Regis Resources Limited (ASX:RRL) Before It Goes Ex-Dividend?

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Regis Resources Limited (ASX:RRL) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 25th of September will not receive this dividend, which will be paid on the 16th of October.

Regis Resources's next dividend payment will be AU$0.08 per share, and in the last 12 months, the company paid a total of AU$0.16 per share. Based on the last year's worth of payments, Regis Resources stock has a trailing yield of around 2.9% on the current share price of A$5.56. If you buy this business for its dividend, you should have an idea of whether Regis Resources's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Regis Resources

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. Fortunately Regis Resources's payout ratio is modest, at just 41% of profit. 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. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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.


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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Regis Resources's earnings per share have been growing at 18% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Regis Resources has delivered an average of 0.9% per year annual increase in its dividend, based on the past seven years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Regis Resources is keeping back more of its profits to grow the business.

Final Takeaway

Is Regis Resources worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Regis Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Regis Resources is facing. Case in point: We've spotted 1 warning sign for Regis Resources you should be aware of.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.