Don't Race Out To Buy Djerriwarrh Investments Limited (ASX:DJW) Just Because It's Going Ex-Dividend

Djerriwarrh Investments Limited (ASX:DJW) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Djerriwarrh Investments' shares on or after the 10th of August, you won't be eligible to receive the dividend, when it is paid on the 25th of August.

The company's next dividend payment will be AU$0.077 per share, on the back of last year when the company paid a total of AU$0.15 to shareholders. Last year's total dividend payments show that Djerriwarrh Investments has a trailing yield of 5.2% on the current share price of A$2.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Djerriwarrh Investments

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. Last year Djerriwarrh Investments paid out 99% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

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 Djerriwarrh Investments paid out over the last 12 months.

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Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Djerriwarrh Investments's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Djerriwarrh Investments also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. 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. Djerriwarrh Investments's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Is Djerriwarrh Investments worth buying for its dividend? While we're glad to see that its earnings aren't shrinking, we're not enamored of the fact that it's paying out 99% of last year's earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in Djerriwarrh Investments despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 2 warning signs for Djerriwarrh Investments (of which 1 is concerning!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.