Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ibstock plc (LON:IBST) is about to trade ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Ibstock's shares before the 18th of August in order to receive the dividend, which the company will pay on the 13th of September.
The company's next dividend payment will be UK£0.033 per share. Last year, in total, the company distributed UK£0.083 to shareholders. Based on the last year's worth of payments, Ibstock has a trailing yield of 4.1% on the current stock price of £2.038. If you buy this business for its dividend, you should have an idea of whether Ibstock's dividend is reliable and sustainable. So we need to investigate whether Ibstock can afford its dividend, and if the dividend could grow.
View our latest analysis for Ibstock
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. Ibstock is paying out an acceptable 55% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Ibstock generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Ibstock's earnings per share have dropped 7.2% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ibstock has delivered 11% dividend growth per year on average over the past six years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
The Bottom Line
From a dividend perspective, should investors buy or avoid Ibstock? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ibstock today.
So if you want to do more digging on Ibstock, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 1 warning sign for Ibstock that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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