Yahoo Finance Should Income Investors Look At Integrated Research Limited (ASX:IRI) Before Its Ex-Dividend?
Readers hoping to buy Integrated Research Limited (ASX:IRI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 2nd of September to receive the dividend, which will be paid on the 15th of October.
Integrated Research's next dividend payment will be AU$0.037 per share. Last year, in total, the company distributed AU$0.072 to shareholders. Calculating the last year's worth of payments shows that Integrated Research has a trailing yield of 1.7% on the current share price of A$4.28. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Integrated Research
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Integrated Research is paying out an acceptable 52% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Integrated Research paid out more free cash flow than it generated - 139%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Integrated Research's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Integrated Research's ability to maintain its dividend.
Click here to see how much of its profit Integrated Research paid out over the last 12 months.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Integrated Research's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Integrated Research has increased its dividend at approximately 3.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Integrated Research is keeping back more of its profits to grow the business.
The Bottom Line
Is Integrated Research worth buying for its dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 139% of its cashflow, which is uncomfortably high. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Integrated Research's dividend merits.
If you're not too concerned about Integrated Research's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for Integrated Research that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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