It looks like Argo Investments Limited (ASX:ARG) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Argo Investments' shares on or after the 25th of August will not receive the dividend, which will be paid on the 15th of September.

The company's upcoming dividend is AU$0.18 a share, following on from the last 12 months, when the company distributed a total of AU$0.34 per share to shareholders. Calculating the last year's worth of payments shows that Argo Investments has a trailing yield of 3.9% on the current share price of A$8.93. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Argo Investments

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. Last year, Argo Investments paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit Argo Investments paid out over the last 12 months. historic-dividend

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. With that in mind, we're encouraged by the steady growth at Argo Investments, with earnings per share up 2.8% on average over the last five years.



Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Argo Investments has lifted its dividend by approximately 2.7% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Argo Investments an attractive dividend stock, or better left on the shelf? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 96% of last year's earnings. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Argo Investments. For example - Argo Investments has 1 warning sign we think you should be aware of.

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.