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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ridley Corporation Limited (ASX:RIC) is about to trade ex-dividend in the next three 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. Accordingly, Ridley investors that purchase the stock on or after the 7th of October will not receive the dividend, which will be paid on the 24th of October.
The company's next dividend payment will be AU$0.0465 per share, and in the last 12 months, the company paid a total of AU$0.093 per share. Calculating the last year's worth of payments shows that Ridley has a trailing yield of 3.7% on the current share price of AU$2.53. 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 Ridley has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Ridley
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. Ridley is paying out an acceptable 72% of its profit, a common payout level among most companies. 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 distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.
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.
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. For this reason, we're glad to see Ridley's earnings per share have risen 10% per annum over the last five years. Ridley 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.