Dividend Investors: Don't Be Too Quick To Buy Ratio Energies - Limited Partnership (TLV:RATI) For Its Upcoming Dividend
Readers hoping to buy Ratio Energies - Limited Partnership (TLV:RATI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Therefore, if you purchase Ratio Energies - Limited Partnership's shares on or after the 2nd of September, you won't be eligible to receive the dividend, when it is paid on the 17th of September.
The company's next dividend payment will be US$0.03559 per share. Last year, in total, the company distributed US$0.12 to shareholders. Based on the last year's worth of payments, Ratio Energies - Limited Partnership stock has a trailing yield of around 7.6% on the current share price of ₪4.569. If you buy this business for its dividend, you should have an idea of whether Ratio Energies - Limited Partnership's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Ratio Energies - Limited Partnership paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Ratio Energies - Limited Partnership generated enough free cash flow to afford its dividend. It paid out an unsustainably high 216% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Ratio Energies - Limited Partnership is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Cash is slightly more important than profit from a dividend perspective, but given Ratio Energies - Limited Partnership's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
View our latest analysis for Ratio Energies - Limited Partnership
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Ratio Energies - Limited Partnership has grown its earnings rapidly, up 79% a year for the past five years. Earnings per share have been growing rapidly, but the company is paying out an uncomfortably high percentage of its earnings as dividends. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ratio Energies - Limited Partnership has delivered 60% dividend growth per year on average over the past five years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Ratio Energies - Limited Partnership worth buying for its dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. Bottom line: Ratio Energies - Limited Partnership has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in Ratio Energies - Limited Partnership and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for Ratio Energies - Limited Partnership (1 is significant!) that you ought to be aware of before buying the 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.