Invicta Holdings Limited (JSE:IVT) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Invicta Holdings' shares on or after the 26th of August will not receive the dividend, which will be paid on the 31st of August.
The company's next dividend payment will be R01.25 per share, on the back of last year when the company paid a total of R1.25 to shareholders. Looking at the last 12 months of distributions, Invicta Holdings has a trailing yield of approximately 3.6% on its current stock price of R035.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Invicta Holdings has been able to grow its dividends, or if the dividend might be cut.
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. Invicta Holdings has a low and conservative payout ratio of just 22% of its income after tax. 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. Invicta Holdings paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Invicta Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Invicta Holdings's ability to maintain its dividend.
See our latest analysis for Invicta Holdings
Click here to see how much of its profit Invicta Holdings paid out over the last 12 months.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Invicta Holdings's earnings have been skyrocketing, up 22% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Invicta Holdings's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Should investors buy Invicta Holdings for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, it's hard to get excited about Invicta Holdings from a dividend perspective.
On that note, you'll want to research what risks Invicta Holdings is facing. Our analysis shows 2 warning signs for Invicta Holdings and you should be aware of them before buying any shares.
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.