Yahoo Finance Here's Why We're Wary Of Buying Decisive Dividend's (CVE:DE) For Its Upcoming Dividend
Decisive Dividend Corporation (CVE:DE) stock is about to trade ex-dividend in 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Decisive Dividend's shares before the 2nd of August in order to be eligible for the dividend, which will be paid on the 24th of August.
The company'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$0.30 to shareholders. Calculating the last year's worth of payments shows that Decisive Dividend has a trailing yield of 8.2% on the current share price of CA$4.38. If you buy this business for its dividend, you should have an idea of whether Decisive Dividend's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Decisive Dividend
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Decisive Dividend paid out 122% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Decisive Dividend generated enough free cash flow to afford its dividend. Decisive Dividend paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Decisive Dividend fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Decisive Dividend 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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Decisive Dividend, with earnings per share up 3.0% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last seven years, Decisive Dividend has lifted its dividend by approximately 6.0% 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 Decisive Dividend worth buying for its dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not that we think Decisive Dividend is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in Decisive Dividend despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 5 warning signs for Decisive Dividend (2 make us uncomfortable!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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