There's A Lot To Like About Ituran Location and Control's (NASDAQ:ITRN) Upcoming US$0.14 Dividend
Readers hoping to buy Ituran Location and Control Ltd. (NASDAQ:ITRN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Ituran Location and Control's shares before the 21st of December in order to be eligible for the dividend, which will be paid on the 5th of January.
The company's next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.56 to shareholders. Calculating the last year's worth of payments shows that Ituran Location and Control has a trailing yield of 2.2% on the current share price of $25.01. 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. As a result, readers should always check whether Ituran Location and Control has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Ituran Location and Control
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. Ituran Location and Control paid out a comfortable 32% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Ituran Location and Control'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.
Click here to see how much of its profit Ituran Location and Control paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Ituran Location and Control earnings per share are up 5.0% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
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 seen its dividend decline 5.6% per annum on average over the past 10 years, which is not great to see. Ituran Location and Control is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Ituran Location and Control an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Ituran Location and Control is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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 Ituran Location and Control is halfway there. Ituran Location and Control looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Ituran Location and Control for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Ituran Location and Control and you should be aware of this before buying any shares.
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
