IGM Financial Inc. (TSE:IGM) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 29th of September in order to be eligible for this dividend, which will be paid on the 30th of October.
IGM Financial's next dividend payment will be CA$0.56 per share, on the back of last year when the company paid a total of CA$2.25 to shareholders. Based on the last year's worth of payments, IGM Financial stock has a trailing yield of around 7.2% on the current share price of CA$31.1. If you buy this business for its dividend, you should have an idea of whether IGM Financial's dividend is reliable and sustainable. So we need to investigate whether IGM Financial can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. IGM Financial is paying out an acceptable 73% of its profit, a common payout level among most companies.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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. 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, IGM Financial has lifted its dividend by approximately 0.9% a year on average.
The Bottom Line
Is IGM Financial an attractive dividend stock, or better left on the shelf? IGM Financial has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.
However if you're still interested in IGM Financial as a potential investment, you should definitely consider some of the risks involved with IGM Financial. Our analysis shows 1 warning sign for IGM Financial and you should be aware of this before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.