Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ReposiTrak, Inc. (NYSE:TRAK) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 ReposiTrak's shares before the 31st of March in order to receive the dividend, which the company will pay on the 15th of May.
The company's upcoming dividend is US$0.02 a share, following on from the last 12 months, when the company distributed a total of US$0.08 per share to shareholders. Based on the last year's worth of payments, ReposiTrak has a trailing yield of 1.1% on the current stock price of US$7.33. If you buy this business for its dividend, you should have an idea of whether ReposiTrak's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. ReposiTrak paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 24% of its free cash flow last year.
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.
Check out our latest analysis for ReposiTrak
Click here to see how much of its profit ReposiTrak paid out over the last 12 months.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see ReposiTrak has grown its earnings rapidly, up 50% a year for the past five years. ReposiTrak earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past three years, ReposiTrak has increased its dividend at approximately 10% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid ReposiTrak? ReposiTrak has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. ReposiTrak looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in ReposiTrak for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for ReposiTrak you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.