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Yellow Pages Limited (TSE:Y) stock is about to trade ex-dividend in 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Yellow Pages' shares before the 23rd of November in order to be eligible for the dividend, which will be paid on the 15th of December.
The company's upcoming dividend is CA$0.20 a share, following on from the last 12 months, when the company distributed a total of CA$0.80 per share to shareholders. Looking at the last 12 months of distributions, Yellow Pages has a trailing yield of approximately 7.3% on its current stock price of CA$11.01. If you buy this business for its dividend, you should have an idea of whether Yellow Pages's dividend is reliable and sustainable. So we need to investigate whether Yellow Pages can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Yellow Pages
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Yellow Pages paid out just 21% 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. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Click here to see how much of its profit Yellow Pages 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Yellow Pages has grown its earnings rapidly, up 30% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.