Income Investors Should Know That Yellow Pages Limited (TSE:Y) Goes Ex-Dividend Soon
Yellow Pages Limited (TSE:Y) stock is about to trade ex-dividend in 4 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. This means that investors who purchase Yellow Pages' shares on or after the 17th of August will not receive the dividend, which will be paid on the 15th of September.
The company's next dividend payment will be CA$0.25 per share. Last year, in total, the company distributed CA$1.00 to shareholders. Looking at the last 12 months of distributions, Yellow Pages has a trailing yield of approximately 7.7% on its current stock price of CA$13.00. 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 investigate whether Yellow Pages can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Yellow Pages's payout ratio is modest, at just 36% of profit. A useful secondary check can be to evaluate whether Yellow Pages generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Yellow Pages's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Yellow Pages
Click here to see how much of its profit Yellow Pages paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Yellow Pages's earnings per share have dropped 9.5% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Yellow Pages has increased its dividend at approximately 15% a year on average.
The Bottom Line
Is Yellow Pages worth buying for its dividend? Yellow Pages has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy Yellow Pages today.
In light of that, while Yellow Pages has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Yellow Pages and you should be aware of it before buying any 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.