It looks like iA Financial Corporation Inc. (TSE:IAG) is about to go ex-dividend in the next 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase iA Financial's shares on or after the 25th of May will not receive the dividend, which will be paid on the 15th of June.
The company's next dividend payment will be CA$0.77 per share. Last year, in total, the company distributed CA$2.70 to shareholders. Last year's total dividend payments show that iA Financial has a trailing yield of 3.5% on the current share price of CA$86.87. If you buy this business for its dividend, you should have an idea of whether iA Financial'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 iA Financial
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. Fortunately iA Financial's payout ratio is modest, at just 34% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, iA Financial's earnings per share have been growing at 10% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, iA Financial has lifted its dividend by approximately 12% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Should investors buy iA Financial for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. iA Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.