Insignia Financial Co., Ltd. (ASX:IFL) has announced that it will pay a dividend of A$0.093 per share on 3 April. Despite the dividend cut, the 7.3% dividend yield is still a big boost to shareholder returns.
Check out our latest analysis for Insignia Financial.
Insignia Financial does not generate enough revenue to cover payments.
We like to see solid dividend yields, but we don't mind if the payments aren't sustainable. Despite not producing profits, Insignia Financial still pays a dividend. As a result, the company has been unable to generate free cash flow, raising concerns about the sustainability of its dividend.
Earnings per share are expected to grow sharply over the next year. Assuming the dividend continues in line with recent trends, the payout ratio could reach 193%, which is at an unsustainable level.
Dividend volatility
The company has a long history of paying dividends, but the dividend has been cut at least once in the past 10 years. Since 2014, dividends have increased from a total of A$0.42 to A$0.186 per year. Dividends declined by approximately 7.8% annually over this period. Generally, it is undesirable to see dividends decreasing over time, as it can reduce shareholder returns and indicate that the company may be in trouble.
Potential for dividend growth is unstable
We really want to see earnings per share grow over time, given the less-than-stellar track record to date. Earnings per share have declined by 14% over the past five years. There is no doubt that such a rapid decline could constrain dividend payments if this trend continues in the future. However, although profits are actually expected to increase next year, I would like to think carefully about this until we have a track record of increased profits.
Insignia Financial's dividend doesn't seem to be very good.
In summary, it's not a good thing to see the dividend cut, but it's probably understandable given that the current payout level was quite high. The company's earnings aren't high enough to pay out such a large dividend, nor is it backed by strong growth or stability. Considering all these factors, you cannot rely on this dividend if you want to live off your income.
Companies with stable dividend policies are likely to attract more investor interest than companies that suffer from a more inconsistent approach. Still, investors need to consider more factors than dividends when analyzing a company. For example, we chose 1 warning sign for Insignia Financial Here's what investors should know before putting money into this stock. If you are a dividend investor, check out this article as well. A carefully selected list of high 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
