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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see IGM Financial Inc. (TSE:IGM) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 27th of September will not receive the dividend, which will be paid on the 31st of October.
IGM Financial's next dividend payment will be CA$0.6 per share. Last year, in total, the company distributed CA$2.3 to shareholders. Calculating the last year's worth of payments shows that IGM Financial has a trailing yield of 5.9% on the current share price of CA$38.08. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for IGM Financial
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. IGM Financial paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that IGM Financial's earnings per share have remained 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. IGM Financial has delivered an average of 0.9% per year annual increase in its dividend, based on the past ten years of dividend payments.
The Bottom Line
Should investors buy IGM Financial for the upcoming dividend? IGM Financial has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.