Readers hoping to buy Euromoney Institutional Investor PLC (LON:ERM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 28th of November will not receive the dividend, which will be paid on the 13th of February.
Euromoney Institutional Investor's next dividend payment will be UK£0.22 per share, and in the last 12 months, the company paid a total of UK£0.33 per share. Calculating the last year's worth of payments shows that Euromoney Institutional Investor has a trailing yield of 2.6% on the current share price of £12.78. If you buy this business for its dividend, you should have an idea of whether Euromoney Institutional Investor's dividend is reliable and sustainable. As a result, readers should always check whether Euromoney Institutional Investor has been able to grow its dividends, or if the dividend might be cut.
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. Euromoney Institutional Investor paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 90% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
As Euromoney Institutional Investor's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Euromoney Institutional Investor's 9.0% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Euromoney Institutional Investor has delivered 9.0% dividend growth per year on average over the past ten years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Euromoney Institutional Investor is already paying out 92% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Should investors buy Euromoney Institutional Investor for the upcoming dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (92%) and cash flow (90%) as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. Bottom line: Euromoney Institutional Investor has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for Euromoney Institutional Investor? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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