Interested In Doman Building Materials Group’s (TSE:DBM) Upcoming CA$0.14 Dividend? You Have Four Days Left

Readers hoping to buy Doman Building Materials Group Ltd. (TSE:DBM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Accordingly, Doman Building Materials Group investors that purchase the stock on or after the 31st of December will not receive the dividend, which will be paid on the 15th of January.

The company’s next dividend payment will be CA$0.14 per share, on the back of last year when the company paid a total of CA$0.56 to shareholders. Calculating the last year’s worth of payments shows that Doman Building Materials Group has a trailing yield of 6.3% on the current share price of CA$8.86. If you buy this business for its dividend, you should have an idea of whether Doman Building Materials Group’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

View our latest analysis for Doman Building Materials Group

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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It’s positive to see that Doman Building Materials Group’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Doman Building Materials Group’s earnings per share have risen 11% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We’re surprised that management has not elected to reinvest more in the business to accelerate growth further.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Doman Building Materials Group’s dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Is Doman Building Materials Group an attractive dividend stock, or better left on the shelf? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that Doman Building Materials Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. All things considered, we are not particularly enthused about Doman Building Materials Group from a dividend perspective.

On that note, you’ll want to research what risks Doman Building Materials Group is facing. We’ve identified 2 warning signs with Doman Building Materials Group (at least 1 which is significant), and understanding them should be part of your investment process.

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.