Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Recipe Unlimited Corporation (TSE:RECP) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 15th of April.
Recipe Unlimited’s next dividend payment will be CA$0.12 per share, and in the last 12 months, the company paid a total of CA$0.45 per share. Calculating the last year’s worth of payments shows that Recipe Unlimited has a trailing yield of 5.7% on the current share price of CA$8.23. 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 Recipe Unlimited has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Recipe Unlimited
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. Recipe Unlimited paid out 61% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 15% of its free cash flow in the last year.
It’s positive to see that Recipe Unlimited’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Recipe Unlimited’s earnings per share have been growing at 19% a year for the past five years. Recipe Unlimited has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Recipe Unlimited has delivered 5.1% dividend growth per year on average over the past five years. Earnings per share have been growing much quicker than dividends, potentially because Recipe Unlimited is keeping back more of its profits to grow the business.
The Bottom Line
From a dividend perspective, should investors buy or avoid Recipe Unlimited? Recipe Unlimited’s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Recipe Unlimited looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
On that note, you’ll want to research what risks Recipe Unlimited is facing. Every company has risks, and we’ve spotted 5 warning signs for Recipe Unlimited you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at [email protected] 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. Simply Wall St has no position in the stocks mentioned.
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