Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jamieson Wellness Inc. (TSE:JWEL) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Accordingly, Jamieson Wellness investors that purchase the stock on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be CA$0.19 per share, and in the last 12 months, the company paid a total of CA$0.76 per share. Calculating the last year's worth of payments shows that Jamieson Wellness has a trailing yield of 2.9% on the current share price of CA$26.15. 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 Jamieson Wellness

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Jamieson Wellness is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Jamieson Wellness generated enough free cash flow to afford its dividend. It paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While Jamieson Wellness's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Jamieson Wellness to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.



Click here to see the company's payout ratio, plus analyst estimates of its future dividends. historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Jamieson Wellness's earnings per share have risen 18% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Jamieson Wellness has delivered an average of 16% per year annual increase in its dividend, based on the past six years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Jamieson Wellness worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Jamieson Wellness paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Jamieson Wellness from a dividend perspective.

However if you're still interested in Jamieson Wellness as a potential investment, you should definitely consider some of the risks involved with Jamieson Wellness. Every company has risks, and we've spotted 4 warning signs for Jamieson Wellness (of which 1 makes us a bit uncomfortable!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.