EMIS Group plc (LON:EMIS) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 26th of September in order to receive the dividend, which the company will pay on the 1st of November.
EMIS Group's next dividend payment will be UK£0.2 per share, and in the last 12 months, the company paid a total of UK£0.3 per share. Based on the last year's worth of payments, EMIS Group stock has a trailing yield of around 3.0% on the current share price of £10.54. 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 EMIS Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 76% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that EMIS Group'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see EMIS Group earnings per share are up 2.1% per annum over the last five years. A high payout ratio of 82% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, EMIS Group could be signalling that its future growth prospects are thin.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. EMIS Group has delivered 12% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid EMIS Group? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of EMIS Group's dividend merits.
Curious what other investors think of EMIS Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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