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4 Days To Buy Tecsys Inc. (TSE:TCS) Before The Ex-Dividend Date

Tecsys Inc. (TSE:TCS) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 18th of March in order to be eligible for this dividend, which will be paid on the 9th of April.

Tecsys's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.24 per share to shareholders. Calculating the last year's worth of payments shows that Tecsys has a trailing yield of 1.4% on the current share price of CA$17.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Tecsys

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tecsys distributed an unsustainably high 144% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's good to see that while Tecsys's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

TSX:TCS Historical Dividend Yield, March 13th 2020
TSX:TCS Historical Dividend Yield, March 13th 2020

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Tecsys's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Tecsys has lifted its dividend by approximately 17% a year on average.

To Sum It Up

Should investors buy Tecsys for the upcoming dividend? Earnings per share have been flat and, while Tecsys paid out just 44% of its cashflow, it paid out an uncomfortably high percentage of its profit. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with Tecsys, you should know about the other risks facing this business. For example, we've found 2 warning signs for Tecsys that we recommend you consider before investing in the business.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.