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Reliance, Inc. (NYSE:RS) is about to trade 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. In other words, investors can purchase Reliance's shares before the 16th of August in order to be eligible for the dividend, which will be paid on the 30th of August.
The company's upcoming dividend is US$1.10 a share, following on from the last 12 months, when the company distributed a total of US$4.40 per share to shareholders. Calculating the last year's worth of payments shows that Reliance has a trailing yield of 1.6% on the current share price of US$282.82. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Reliance has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Reliance
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. Reliance paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Reliance generated enough free cash flow to afford its dividend. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Reliance'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 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. 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, Reliance's earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.