Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Adcorp Holdings Limited (JSE:ADR) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Adcorp Holdings' shares before the 15th of January to receive the dividend, which will be paid on the 20th of January.
The company's next dividend payment will be R00.134 per share, on the back of last year when the company paid a total of R0.38 to shareholders. Calculating the last year's worth of payments shows that Adcorp Holdings has a trailing yield of 8.1% on the current share price of R04.66. 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 Adcorp Holdings
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Adcorp Holdings paying out a modest 48% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.
It's positive to see that Adcorp Holdings'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 Adcorp Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Adcorp Holdings's earnings per share have fallen at approximately 21% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.