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Don't Race Out To Buy Input Capital Corp. (CVE:INP) Just Because It's Going Ex-Dividend

It looks like Input Capital Corp. (CVE:INP) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 30th of March will not receive this dividend, which will be paid on the 15th of April.

Input Capital's next dividend payment will be CA$0.01 per share, on the back of last year when the company paid a total of CA$0.04 to shareholders. Last year's total dividend payments show that Input Capital has a trailing yield of 8.3% on the current share price of CA$0.48. 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.

See our latest analysis for Input Capital

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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. Input Capital reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Input Capital didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 31% of its free cash flow in the past year.

Click here to see how much of its profit Input Capital paid out over the last 12 months.

TSXV:INP Historical Dividend Yield March 26th 2020
TSXV:INP Historical Dividend Yield March 26th 2020

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Input Capital reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Input Capital's dividend payments are effectively flat on where they were three years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Remember, you can always get a snapshot of Input Capital's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Input Capital for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Input Capital as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 4 warning signs for Input Capital (of which 1 is concerning!) you should know about.

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.