Yahoo Finance Do These 3 Checks Before Buying K-Bro Linen Inc. (TSE:KBL) For Its Upcoming Dividend
It looks like K-Bro Linen Inc. (TSE:KBL) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase K-Bro Linen's shares before the 28th of September to receive the dividend, which will be paid on the 13th of October.
The company's upcoming dividend is CA$0.10 a share, following on from the last 12 months, when the company distributed a total of CA$1.20 per share to shareholders. Based on the last year's worth of payments, K-Bro Linen has a trailing yield of 3.6% on the current stock price of CA$33.12. If you buy this business for its dividend, you should have an idea of whether K-Bro Linen's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for K-Bro Linen
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. K-Bro Linen distributed an unsustainably high 136% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 101% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Cash is slightly more important than profit from a dividend perspective, but given K-Bro Linen's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at K-Bro Linen, with earnings per share up 7.0% on average over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the K-Bro Linen dividends are largely the same as they were 10 years ago.
The Bottom Line
Should investors buy K-Bro Linen for the upcoming dividend? K-Bro Linen is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of K-Bro Linen.
With that in mind though, if the poor dividend characteristics of K-Bro Linen don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for K-Bro Linen you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
