Don’t buy Investment Trust Public Limited Company (LON:RIII) rights and issues for its next dividend without doing these checks

Don’t buy Investment Trust Public Limited Company (LON:RIII) rights and issues for its next dividend without doing these checks

Readers hoping to buy Rights and Issues Investment Trust Public Limited Company (LON:RIII) for its dividend will have to make its move soon, as the stock is on track to trade ex-dividend. 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 settlement process takes two full business days. So if you miss this date, you will not appear on the company’s books on the date of entry. Thus, you can buy Rights and Issues Investment Trust shares before March 7th to receive the dividend that the company will pay on April 5th.

The company’s next dividend payment will be £0.3125 per share, compared to last year when the company paid a total of £0.43 to shareholders. Looking at the last 12 months of distribution, Rights and Issues Investment Trust has a trailing yield of approximately 2.0% relative to its current share price of £21.00. Dividends are a major driver of investment returns for long-term holders, but only if the dividend continues to be paid. That’s why we should always check if dividend payments look sustainable and if the company is growing.

Check out our latest analysis on Rights and Issues Investment Trust

If a company pays out more dividends than it earns, then the dividend can become unsustainable – hardly an ideal situation. Rights and Issues Investment Trust paid out more than half (70%) of its earnings last year, which is a common payout ratio for most companies.

When a company pays out less in dividends than it earned in earnings, it usually suggests that its dividend is affordable. The lower the percentage of profit it pays out, the greater the margin of safety for the dividend if the business goes into decline.

Click here to see how much of its profit Rights and Issues Investment Trust has paid out over the last 12 months.

historical dividend

historical dividend

Are earnings and dividends growing?

Companies with declining earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. That’s why it’s not ideal to see Rights and Issues Investment Trust’s earnings per share shrink by 2.1% per year over the previous five years.

Many investors will evaluate a company’s dividend performance by evaluating how much dividend payments have changed over time. Since our data began, 10 years ago, Rights and Issues Investment Trust has increased its dividend by an average of approximately 4.5% per year. Increasing the dividend payout ratio while earnings are falling can provide good returns for a while, but it’s always worth checking when the company can no longer increase the payout ratio – because that’s when the music stops.

Let’s sum it up

Does Rights and Issues Investment Trust have what it takes to keep paying dividends? Earnings per share are down and the company is paying out more than half of its profits to shareholders; not a tempting combination. These characteristics generally do not lead to exceptional dividend performance, and investors may not be satisfied with the results of owning this dividend stock.

Curious if the Rights and Issues Investment Trust has been able to consistently generate growth? Here’s a chart of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find full list of high yielding dividend stocks.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.

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