Why It Might Not Make Sense To Buy iCon Group Ltd (TLV:ICON) For Its Upcoming Dividend
iCon Group Ltd (TLV:ICON) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase iCon Group's shares on or after the 24th of August, you won't be eligible to receive the dividend, when it is paid on the 8th of September.
The company's next dividend payment will be ₪0.1742881 per share, and in the last 12 months, the company paid a total of ₪0.70 per share. Based on the last year's worth of payments, iCon Group stock has a trailing yield of around 9.4% on the current share price of ₪7.499. If you buy this business for its dividend, you should have an idea of whether iCon Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. iCon Group distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 384% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since iCon Group is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Cash is slightly more important than profit from a dividend perspective, but given iCon Group's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
View our latest analysis for iCon Group
Click here to see how much of its profit iCon Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that iCon Group's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Minimal earnings growth, combined with concerningly high payout ratios suggests that iCon Group is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. iCon Group has delivered 58% dividend growth per year on average over the past three years.
To Sum It Up
From a dividend perspective, should investors buy or avoid iCon Group? iCon Group is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
So if you're still interested in iCon Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 3 warning signs with iCon Group and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.