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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Third Age Health Services Limited (NZSE:TAH) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Third Age Health Services' shares before the 1st of August in order to receive the dividend, which the company will pay on the 15th of August.
The company's upcoming dividend is NZ$0.0328325 a share, following on from the last 12 months, when the company distributed a total of NZ$0.10 per share to shareholders. Based on the last year's worth of payments, Third Age Health Services stock has a trailing yield of around 5.9% on the current share price of NZ$1.70. 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! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Third Age Health Services
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Third Age Health Services paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 39% 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 how much of its profit Third Age Health Services paid out over the last 12 months.
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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Third Age Health Services, with earnings per share up 5.5% on average over the last five years. Decent historical earnings per share growth suggests Third Age Health Services has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.