Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Richards Packaging Income Fund (TSE:RPI.UN) is about to go ex-dividend in just 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Meaning, you will need to purchase Richards Packaging Income Fund’s shares before the 31st of October to receive the dividend, which will be paid on the 14th of November.
The company’s next dividend payment will be CA$0.11 per share, on the back of last year when the company paid a total of CA$1.32 to shareholders. Last year’s total dividend payments show that Richards Packaging Income Fund has a trailing yield of 5.4% on the current share price of CA$31.24. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
Check out our latest analysis for Richards Packaging Income Fund
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Richards Packaging Income Fund paid out 56% of its earnings to investors last year, a normal payout level for most businesses. 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. The good news is it paid out just 21% 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 Richards Packaging Income Fund paid out over the last 12 months.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at Richards Packaging Income Fund, with earnings per share up 9.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
