The board of Rights and Issues Investment Trust Public Limited Company (LON:RIII) has announced that it will pay a dividend of £0.1075 per share on the 26th of September. This means the annual payment will be 1.6% of the current stock price, which is lower than the industry average.
Rights and Issues Investment Trust’s Distributions May Be Difficult To Sustain
If it is predictable over a long period, even low dividend yields can be attractive. Despite not generating a profit, Rights and Issues Investment Trust is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
If the trend of the last few years continues, EPS will grow by 3.5% over the next 12 months. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this happens fairly soon, the dividend could start to come under pressure.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was £0.255, compared to the most recent full-year payment of £0.348. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Rights and Issues Investment Trust May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been crawling upwards at 3.5% per year. Rights and Issues Investment Trust isn’t actually turning a profit, which makes it much harder for us to see how they can grow dividends.
The Dividend Could Prove To Be Unreliable
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn’t great, and the payments are a bit high to be considered sustainable. We don’t think Rights and Issues Investment Trust is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for Rights and Issues Investment Trust that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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