Yahoo Finance Should You Buy E-L Financial Corporation Limited (TSE:ELF) For Its Upcoming Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see E-L Financial Corporation Limited (TSE:ELF) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, E-L Financial investors that purchase the stock on or after the 30th of December will not receive the dividend, which will be paid on the 17th of January.
The company's next dividend payment will be CA$2.50 per share, on the back of last year when the company paid a total of CA$10.00 to shareholders. Based on the last year's worth of payments, E-L Financial has a trailing yield of 1.1% on the current stock price of CA$907.99. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether E-L Financial can afford its dividend, and if the dividend could grow.
Check out our latest analysis for E-L Financial
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. E-L Financial paid out just 2.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see how much of its profit E-L Financial paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see E-L Financial has grown its earnings rapidly, up 23% a year for the past five years.
E-L Financial also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, E-L Financial has increased its dividend at approximately 35% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy E-L Financial for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, E-L Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Want to learn more about E-L Financial? Here's a visualisation of its historical rate of revenue and earnings growth.
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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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.
