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Readers hoping to buy Third Age Health Services Limited (NZSE:TAH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Third Age Health Services' shares before the 13th of February in order to be eligible for the dividend, which will be paid on the 27th of February.
The company's next dividend payment will be NZ$0.0389977 per share, and in the last 12 months, the company paid a total of NZ$0.10 per share. Based on the last year's worth of payments, Third Age Health Services stock has a trailing yield of around 3.4% on the current share price of NZ$3.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Third Age Health Services has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Third Age Health Services
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. Third Age Health Services paid out 69% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Third Age Health Services generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.
It's positive to see that Third Age Health Services'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 Third Age Health Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Third Age Health Services's earnings per share have been growing at 12% a year for the past five years. Third Age Health Services is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.