Definity Financial Corporation (TSE:DFY) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Definity Financial’s shares on or after the 14th of March, you won’t be eligible to receive the dividend, when it is paid on the 28th of March.
The company’s next dividend payment will be CA$0.16 per share, and in the last 12 months, the company paid a total of CA$0.64 per share. Based on the last year’s worth of payments, Definity Financial has a trailing yield of 1.4% on the current stock price of CA$46.00. If you buy this business for its dividend, you should have an idea of whether Definity Financial’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Definity Financial
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. Definity Financial paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Definity Financial has grown its earnings rapidly, up 27% a year for the past three 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, Definity Financial has lifted its dividend by approximately 1.3% a year on average. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Is Definity Financial worth buying for its dividend? Companies like Definity Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. Overall, Definity Financial looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Curious what other investors think of Definity Financial? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are 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.