Yahoo Finance It Might Not Be A Great Idea To Buy Rogers Sugar Inc. (TSE:RSI) For Its Next Dividend
Readers hoping to buy Rogers Sugar Inc. (TSE:RSI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase Rogers Sugar's shares before the 28th of June in order to be eligible for the dividend, which will be paid on the 11th of July.
The company's next dividend payment will be CA$0.09 per share, on the back of last year when the company paid a total of CA$0.36 to shareholders. Based on the last year's worth of payments, Rogers Sugar has a trailing yield of 6.3% on the current stock price of CA$5.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Rogers Sugar has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Rogers Sugar
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Rogers Sugar paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 159% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Rogers Sugar paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Rogers Sugar to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Rogers Sugar's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
We'd also point out that Rogers Sugar issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Rogers Sugar's dividend payments are effectively flat on where they were 10 years ago.
The Bottom Line
Has Rogers Sugar got what it takes to maintain its dividend payments? It's not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Rogers Sugar as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 3 warning signs with Rogers Sugar and understanding them should be part of your investment process.
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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
