It looks like Richards Packaging Income Fund (TSE:RPI.UN) is about to go ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 29th of October will not receive this dividend, which will be paid on the 13th of November.
Richards Packaging Income Fund's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.32 to shareholders. Looking at the last 12 months of distributions, Richards Packaging Income Fund has a trailing yield of approximately 1.6% on its current stock price of CA$83. 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! So we need to investigate whether Richards Packaging Income Fund can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Richards Packaging Income Fund paid out a comfortable 42% of its profit last year. A useful secondary check can be to evaluate whether Richards Packaging Income Fund generated enough free cash flow to afford its dividend. Luckily it paid out just 20% of its free cash flow last 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Richards Packaging Income Fund's earnings have been skyrocketing, up 33% per annum for the past five years. Richards Packaging Income Fund is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Richards Packaging Income Fund has increased its dividend at approximately 5.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Has Richards Packaging Income Fund got what it takes to maintain its dividend payments? Richards Packaging Income Fund has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Richards Packaging Income Fund for the dividends alone, you should always be mindful of the risks involved. For example - Richards Packaging Income Fund has 2 warning signs we think you should be aware of.
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.
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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