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It looks like Djerriwarrh Investments Limited (ASX:DJW) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 29th of January will not receive the dividend, which will be paid on the 22nd of February.
Djerriwarrh Investments's next dividend payment will be AU$0.052 per share, on the back of last year when the company paid a total of AU$0.10 to shareholders. Based on the last year's worth of payments, Djerriwarrh Investments has a trailing yield of 3.4% on the current stock price of A$3.1. 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.
See our latest analysis for Djerriwarrh Investments
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Djerriwarrh Investments distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see how much of its profit Djerriwarrh Investments paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Djerriwarrh Investments's earnings per share have fallen at approximately 19% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Djerriwarrh Investments's dividend payments per share have declined at 8.7% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
To Sum It Up
Is Djerriwarrh Investments an attractive dividend stock, or better left on the shelf? Not only are earnings per share shrinking, but Djerriwarrh Investments is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.