Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ituran Location and Control Ltd. (NASDAQ:ITRN) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 25th of September, you won't be eligible to receive this dividend, when it is paid on the 10th of October.
Ituran Location and Control's next dividend payment will be US$0.2 per share, and in the last 12 months, the company paid a total of US$0.9 per share. Last year's total dividend payments show that Ituran Location and Control has a trailing yield of 3.4% on the current share price of $27.04. If you buy this business for its dividend, you should have an idea of whether Ituran Location and Control'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.
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. Ituran Location and Control paid out a comfortable 37% 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. Fortunately, it paid out only 47% of its free cash flow in the past year.
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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Ituran Location and Control's earnings per share have risen 17% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ituran Location and Control has delivered an average of 18% per year annual increase in its dividend, based on the past ten years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Ituran Location and Control got what it takes to maintain its dividend payments? It's great that Ituran Location and Control 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. Ituran Location and Control looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about Ituran Location and Control? Here's a visualisation of its historical rate of revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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