Yahoo Finance Should You Buy Dream Unlimited Corp. (TSE:DRM) For Its Upcoming Dividend?
Dream Unlimited Corp. (TSE:DRM) is about to trade ex-dividend in the next two days. You will need to purchase shares before the 14th of September to receive the dividend, which will be paid on the 30th of September.
Dream Unlimited'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. Last year's total dividend payments show that Dream Unlimited has a trailing yield of 1.2% on the current share price of CA$19.86. If you buy this business for its dividend, you should have an idea of whether Dream Unlimited's dividend is reliable and sustainable. So we need to investigate whether Dream Unlimited can afford its dividend, and if the dividend could grow.
View our latest analysis for Dream Unlimited
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. Dream Unlimited paid out just 1.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 good news is it paid out just 6.8% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Dream Unlimited paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Dream Unlimited's earnings have been skyrocketing, up 52% per annum for the past five years. Dream Unlimited earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Dream Unlimited has increased its dividend at approximately 9.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is Dream Unlimited worth buying for its dividend? Dream Unlimited has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Dream Unlimited looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Dream Unlimited looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for Dream Unlimited (1 can't be ignored) you should be aware of.
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.
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