Should You Buy RM plc (LON:RM.) For Its Upcoming Dividend In 3 Days?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see RM plc (LON:RM.) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 8th of August to receive the dividend, which will be paid on the 13th of September.
RM's upcoming dividend is UK£0.02 a share, following on from the last 12 months, when the company distributed a total of UK£0.076 per share to shareholders. Based on the last year's worth of payments, RM has a trailing yield of 3.2% on the current stock price of £2.37. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for RM
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately RM's payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether RM generated enough free cash flow to afford its dividend. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that RM'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see RM's earnings have been skyrocketing, up 24% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, RM has lifted its dividend by approximately 1.4% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
From a dividend perspective, should investors buy or avoid RM? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
Curious what other investors think of RM? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.
