Reckon Limited (ASX:RKN) is about to trade ex-dividend in the next 4 days. The ex-dividend date is commonly two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Reckon's shares before the 13th of August to receive the dividend, which will be paid on the 31st of August.
The company's next dividend payment will be AU$0.025 per share, and in the last 12 months, the company paid a total of AU$0.025 per share. Looking at the last 12 months of distributions, Reckon has a trailing yield of approximately 5.3% on its current stock price of AU$0.475. 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 Reckon 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. Fortunately Reckon's payout ratio is modest, at just 37% of profit. 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. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Reckon'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.
Check out our latest analysis for Reckon
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 fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Reckon's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Reckon's dividend payments per share have declined at 10% per year on average over the past 10 years, which is uninspiring.
Final Takeaway
Is Reckon an attractive dividend stock, or better left on the shelf? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. To summarise, Reckon looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while Reckon has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for Reckon you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.