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 Eildon Capital Fund (ASX:EDC) is about to go ex-dividend in just 2 days. Ex-dividend means that investors that purchase the stock on or after the 30th of September will not receive this dividend, which will be paid on the 23rd of October.
Eildon Capital Fund's next dividend payment will be AU$0.019 per share. Last year, in total, the company distributed AU$0.073 to shareholders. Looking at the last 12 months of distributions, Eildon Capital Fund has a trailing yield of approximately 7.1% on its current stock price of A$0.88. 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 check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Eildon Capital Fund's earnings have been skyrocketing, up 45% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last three years, Eildon Capital Fund has lifted its dividend by approximately 4.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Eildon Capital Fund is keeping back more of its profits to grow the business.
Has Eildon Capital Fund got what it takes to maintain its dividend payments? Earnings per share are growing at an attractive rate, and Eildon Capital Fund is paying out a bit over half its profits. Overall, Eildon Capital Fund looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Eildon Capital Fund has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Eildon Capital Fund that we recommend you consider before investing in the business.
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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