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Readers hoping to buy Ebix, Inc. (NASDAQ:EBIX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 1st of September will not receive this dividend, which will be paid on the 16th of September.
Ebix's next dividend payment will be US$0.075 per share, and in the last 12 months, the company paid a total of US$0.30 per share. Based on the last year's worth of payments, Ebix stock has a trailing yield of around 1.2% on the current share price of $24.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Ebix is paying out just 10% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Ebix generated enough free cash flow to afford its dividend. The good news is it paid out just 9.5% of its free cash flow in the last year.
It's positive to see that Ebix's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Ebix's earnings per share have risen 12% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, Ebix has lifted its dividend by approximately 7.2% a year on average. 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.
To Sum It Up
Is Ebix an attractive dividend stock, or better left on the shelf? It's great that Ebix is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 3 warning signs for Ebix (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
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.
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