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Why It Might Not Make Sense To Buy Accord Financial Corp. (TSE:ACD) For Its Upcoming Dividend

Simply Wall St
·3 min read

It looks like Accord Financial Corp. (TSE:ACD) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 12th of November will not receive the dividend, which will be paid on the 1st of December.

Accord Financial's next dividend payment will be CA$0.05 per share, and in the last 12 months, the company paid a total of CA$0.20 per share. Looking at the last 12 months of distributions, Accord Financial has a trailing yield of approximately 3.7% on its current stock price of CA$5.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Accord Financial

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. An unusually high payout ratio of 261% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see how much of its profit Accord Financial paid out over the last 12 months.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Accord Financial's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 32% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Accord Financial has seen its dividend decline 2.6% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has Accord Financial got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Accord Financial is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

So if you're still interested in Accord Financial despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Accord Financial is showing 5 warning signs in our investment analysis, and 1 of those can't be ignored...

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.