Information Services Corporation (TSE:ISV) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 27th of September to receive the dividend, which will be paid on the 15th of October.
Information Services's next dividend payment will be CA$0.2 per share, and in the last 12 months, the company paid a total of CA$0.8 per share. Calculating the last year's worth of payments shows that Information Services has a trailing yield of 5.0% on the current share price of CA$15.96. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Information Services
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Information Services is paying out an acceptable 71% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Information Services generated enough free cash flow to afford its dividend. Dividends consumed 64% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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 how much of its profit Information Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Information Services's earnings per share have fallen at approximately 24% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Information Services dividends are largely the same as they were six years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
To Sum It Up
Is Information Services worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.