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Reach plc, a prominent company in the communication sector, is scheduled to trade ex-dividend in three days. The ex-dividend date, set for the 15th of August, is the last opportunity for shareholders to qualify for the upcoming dividend payment. To receive the dividend, individual must be listed on the company's books by the record date, which is one business day after the ex-dividend date. Consequently, those who purchase Reach shares on or after the 15th of August will not be eligible for the upcoming dividend, which is set to be distributed on the 20th of September.
The upcoming dividend is set at £0.0288 per share, adding to the total of £0.073 per share paid out over the last 12 months. This results in a trailing yield of approximately 7.1%, based on the current share price of £1.03. While dividends can be an appealing source of income, it’s crucial to evaluate whether a company can sustain its dividend payments without compromising its financial health.
A key aspect to consider is the payout ratio, which indicates the portion of profit distributed as dividends. Reach (LSE:RCH)'s payout ratio currently stands at 56%, a level commonly seen among many companies. However, it’s also important to assess whether the company generates enough cash flow to cover its dividend payments. Over the past 12 months, Reach paid out 232% of its free cash flow as dividends, a figure that raises concerns about the sustainability of its dividend payments.
Potential for Future Dividend
Despite the company’s dividends being covered by its reported profits, the shortfall in cash flow is troubling. If this trend continues, it could pose a risk to Reach's ability to maintain its dividend payments. Additionally, Reach's earnings per share have been declining at an average rate of 2.7% per year over the last five years, further complicating the outlook for dividend sustainability.
While Reach has managed to increase its dividend by an average of 9.8% annually over the past decade, this growth may not be sustainable if earnings continue to decline. The combination of a growing dividend with shrinking earnings suggests that the company is paying out a larger portion of its profits, which could become unsustainable over time.
While Reach plc offers an attractive dividend yield, there are concerns regarding the sustainability of its dividend payments. The company's declining earnings and high cash flow payout ratio suggest that maintaining the current level of dividends may be challenging in the long term. Investors may want to closely monitor the company's financial performance before making any decisions.
