It may not be a good idea to buy Imperial Pacific Limited (ASX: IPC) for its next dividend

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Imperial Pacific Limited (ASX: IPC) is set to trade ex-dividend within the next four days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy Imperial Pacific shares before October 14 in order to be eligible for the dividend, which will be paid on October 22.

The company’s next dividend payment will be AU $ 0.063 per share. Last year, in total, the company distributed AU $ 0.063 to shareholders. Calculating the value of last year’s payouts shows Imperial Pacific has a rolling 3.9% return on the current share price of AU $ 1.6. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.

Check out our latest review for Imperial Pacific

Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, the dividend could be unsustainable. Imperial Pacific reported an after-tax loss last year, which means it pays a dividend despite not being profitable. Although this may be a one-time event, it is unlikely to be sustainable in the long term.

Click here to see how much of its profits Imperial Pacific has paid in the past 12 months.

ASX: Historical CPI Dividend October 9, 2021

Have profits and dividends increased?

Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If profits fall enough, the company could be forced to cut its dividend. Imperial Pacific reported a loss last year, but at least the general trend suggests that its earnings have improved over the past five years. Even so, an unprofitable company whose business does not recover quickly is generally not a good candidate for dividend investors.

It should also be noted that Imperial Pacific issued a significant number of new shares over the past year. Trying to raise the dividend while issuing large amounts of new stock reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a rock upward.

Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began 10 years ago, Imperial Pacific has increased its dividend by around 2.3% per year on average. It’s encouraging to see the company raising its dividends as profits rise, suggesting at least some corporate interest in rewarding shareholders.

We update our analysis on Imperial Pacific every 24 hours, so you can always get the latest information on its financial health, right here.

To summarize

Is Imperial Pacific an attractive dividend-paying stock, or better still, is it being left out? We are uncomfortable with the fact that Imperial Pacific paid a dividend while being in deficit. Imperial Pacific does not appear to have much to offer, and we are not inclined to take the risk of owning it for the dividend.

So, if you are still interested in Imperial Pacific despite its poor dividend qualities, you should be well informed about some of the risks that this security faces. For example, we have identified 4 warning signs for Imperial Pacific (3 don’t sit too well with us) you should be aware.

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

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