Yahoo Finance Don't Race Out To Buy Third Age Health Services Limited (NZSE:TAH) Just Because It's Going Ex-Dividend
It looks like Third Age Health Services Limited (NZSE:TAH) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Third Age Health Services' shares before the 7th of November in order to receive the dividend, which the company will pay on the 20th of November.
The company's next dividend payment will be NZ$0.023 per share, on the back of last year when the company paid a total of NZ$0.05 to shareholders. Calculating the last year's worth of payments shows that Third Age Health Services has a trailing yield of 3.3% on the current share price of NZ$1.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Third Age Health Services
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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Third Age Health Services generated enough free cash flow to afford its dividend. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Third Age Health Services's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Third Age Health Services paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Third Age Health Services's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 59% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, two years ago, Third Age Health Services has lifted its dividend by approximately 13% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Third Age Health Services is already paying out 76% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid Third Age Health Services? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think Third Age Health Services is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Third Age Health Services as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 6 warning signs for Third Age Health Services (3 are potentially serious) you should be aware of.
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.
