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Be Sure To Check Out Imperial Equities Inc. (CVE:IEI) Before It Goes Ex-Dividend

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Imperial Equities Inc. (CVE:IEI) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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, Imperial Equities investors that purchase the stock on or after the 13th of January will not receive the dividend, which will be paid on the 31st of January.

The company's upcoming dividend is CA$0.015 a share, following on from the last 12 months, when the company distributed a total of CA$0.06 per share to shareholders. Calculating the last year's worth of payments shows that Imperial Equities has a trailing yield of 1.3% on the current share price of CA$4.6. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Imperial Equities can afford its dividend, and if the dividend could grow.

View our latest analysis for Imperial Equities

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. Imperial Equities is paying out just 8.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 4.1% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Imperial Equities's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Imperial Equities earnings per share are up 9.7% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Imperial Equities's dividend payments per share have declined at 5.5% per year on average over the past nine years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

From a dividend perspective, should investors buy or avoid Imperial Equities? Earnings per share have been growing moderately, and Imperial Equities is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Imperial Equities is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Imperial Equities, and we would prioritise taking a closer look at it.

In light of that, while Imperial Equities has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Imperial Equities has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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