Yahoo Finance We Wouldn't Be Too Quick To Buy Australian Foundation Investment Company Limited (ASX:AFI) Before It Goes Ex-Dividend
It looks like Australian Foundation Investment Company Limited (ASX:AFI) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. In other words, investors can purchase Australian Foundation Investment's shares before the 11th of August in order to be eligible for the dividend, which will be paid on the 1st of September.
The company's upcoming dividend is AU$0.14 a share, following on from the last 12 months, when the company distributed a total of AU$0.25 per share to shareholders. Calculating the last year's worth of payments shows that Australian Foundation Investment has a trailing yield of 3.5% on the current share price of A$7.21. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Australian Foundation Investment
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. Australian Foundation Investment paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Australian Foundation Investment'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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Australian Foundation Investment has lifted its dividend by approximately 1.3% a year on average.
Final Takeaway
Has Australian Foundation Investment got what it takes to maintain its dividend payments? Australian Foundation Investment's earnings have barely moved in recent times, and the company is paying out a disagreeably high percentage of its earnings; a mediocre combination. 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 being said, if you're still considering Australian Foundation Investment as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Australian Foundation Investment and you should be aware of them 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.
