Is It Worth Considering Lewis Group Limited (JSE:LEW) For Its Upcoming Dividend?
Lewis Group Limited (JSE:LEW) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Lewis Group's shares before the 22nd of July in order to be eligible for the dividend, which will be paid on the 27th of July.
The company's next dividend payment will be R05.60 per share, and in the last 12 months, the company paid a total of R8.97 per share. Looking at the last 12 months of distributions, Lewis Group has a trailing yield of approximately 9.4% on its current stock price of R095.93. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Lewis Group can afford its dividend, and if the dividend could grow.
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. Lewis Group is paying out an acceptable 54% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Lewis Group generated enough free cash flow to afford its dividend. It paid out 96% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Lewis Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Lewis Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Lewis Group
Click here to see how much of its profit Lewis Group 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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Lewis Group's earnings have been skyrocketing, up 25% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lewis Group has delivered an average of 5.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Lewis Group is keeping back more of its profits to grow the business.
The Bottom Line
Is Lewis Group an attractive dividend stock, or better left on the shelf? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. So, you might think that Lewis Group buying back stock, growing its EPS, and retaining profits within its business is a good combination. However, we note with some concern that it paid out 96% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you want to look further into Lewis Group, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for Lewis Group that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.