Yahoo Finance Do These 3 Checks Before Buying Eildon Capital Fund (ASX:EDC) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eildon Capital Fund (ASX:EDC) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day 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. Accordingly, Eildon Capital Fund investors that purchase the stock on or after the 4th of January will not receive the dividend, which will be paid on the 24th of January.
The company's next dividend payment will be AU$0.02 per share. Last year, in total, the company distributed AU$0.079 to shareholders. Looking at the last 12 months of distributions, Eildon Capital Fund has a trailing yield of approximately 7.5% on its current stock price of A$1.06. If you buy this business for its dividend, you should have an idea of whether Eildon Capital Fund's dividend is reliable and sustainable. So we need to investigate whether Eildon Capital Fund can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Eildon Capital Fund
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. An unusually high payout ratio of 336% of its profit suggests something is happening other than the usual distribution of profits to shareholders.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see how much of its profit Eildon Capital Fund paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Eildon Capital Fund's 28% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
We'd also point out that Eildon Capital Fund issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, five years ago, Eildon Capital Fund has lifted its dividend by approximately 7.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Eildon Capital Fund is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Should investors buy Eildon Capital Fund for the upcoming dividend? Not only are earnings per share shrinking, but Eildon Capital Fund is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of Eildon Capital Fund don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 6 warning signs for Eildon Capital Fund (1 is a bit concerning!) that deserve your attention before investing in the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
