It looks like R.R. Donnelley & Sons Company (NYSE:RRD) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 13th of February will not receive the dividend, which will be paid on the 2nd of March.
R.R. Donnelley & Sons's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Calculating the last year's worth of payments shows that R.R. Donnelley & Sons has a trailing yield of 4.6% on the current share price of $2.59. If you buy this business for its dividend, you should have an idea of whether R.R. Donnelley & Sons's dividend is reliable and sustainable. As a result, readers should always check whether R.R. Donnelley & Sons has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. R.R. Donnelley & Sons paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If R.R. Donnelley & Sons didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. R.R. Donnelley & Sons reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. R.R. Donnelley & Sons has seen its dividend decline 28% per annum on average over the past ten 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid R.R. Donnelley & Sons? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Curious what other investors think of R.R. Donnelley & Sons? See what analysts 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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