It looks like Italtile Limited (JSE:ITE) is about to go ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, 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 can take two business days or more to settle. Therefore, if you purchase Italtile's shares on or after the 26th of March, you won't be eligible to receive the dividend, when it is paid on the 31st of March.
The company's next dividend payment will be R00.28 per share, and in the last 12 months, the company paid a total of R0.49 per share. Looking at the last 12 months of distributions, Italtile has a trailing yield of approximately 4.6% on its current stock price of R010.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Italtile paid out a comfortable 40% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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.
View our latest analysis for Italtile
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Italtile, with earnings per share up 4.1% on average over the last five years. A high payout ratio of 40% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Italtile could be signalling that its future growth prospects are thin.