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 RXP Services Limited (ASX:RXP) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 12th of September will not receive this dividend, which will be paid on the 3rd of October.
RXP Services's next dividend payment will be AU$0.03 per share, and in the last 12 months, the company paid a total of AU$0.043 per share. Last year's total dividend payments show that RXP Services has a trailing yield of 7.5% on the current share price of A$0.57. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for RXP Services
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. RXP Services lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
Click here to see how much of its profit RXP Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. RXP Services was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 4 years, RXP Services has lifted its dividend by approximately 36% a year on average.