Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Adairs Limited (ASX: ADH) is set to be ex-dividend in just 4 days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the record date. As a result, Adairs investors who buy the shares on or after September 8 will not receive the dividend, which will be paid on September 23.
The company’s next dividend payment will be A $ 0.10 per share, and over the past 12 months the company has paid a total of A $ 0.23 per share. Last year’s total dividend payouts show Adairs has a rolling 5.9% return on the current share price of A $ 3.92. If you are buying this company for its dividend, you should know if Adairs’ dividend is reliable and sustainable. You have to see if the dividend is covered by profits and if it increases.
Check out our latest analysis for Adairs
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Adairs paid out more than half (61%) of its profits last year, which is a steady payout ratio for most companies. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Fortunately, she has only paid out 38% of her free cash flow in the past year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If profits fall enough, the company could be forced to cut its dividend. Luckily for readers, Adairs’ earnings per share have grown 18% per year over the past five years. Adairs has an average payout ratio that suggests a balance between earnings growth and shareholder reward. Given the rapid rate of growth in earnings per share and the current level of payout, there may be a possibility of further dividend increases in the future.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Adairs has delivered an average annual increase of 15% per annum in its dividend, based on the past six years of dividend payments. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.
Is Adairs worth buying for its dividend? We like the growth in Adairs earnings per share and the fact that while its payout ratio is average, it paid a lower percentage of its cash flow. Adairs looks solid on this analysis overall, and we would definitely consider taking a closer look.
Although it is tempting to invest in Adairs purely for dividends, you should always be aware of the risks involved. Every business has risks, and we have spotted 1 warning sign for Adairs you should know.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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