It looks like Ituran Location and Control Ltd. (NASDAQ:ITRN) is about to go ex-dividend in the next two days. 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. Meaning, you will need to purchase Ituran Location and Control's shares before the 18th of June to receive the dividend, which will be paid on the 2nd of July.

The company's upcoming dividend is US$0.39 a share, following on from the last 12 months, when the company distributed a total of US$1.56 per share to shareholders. Based on the last year's worth of payments, Ituran Location and Control stock has a trailing yield of around 6.0% on the current share price of US$25.97. If you buy this business for its dividend, you should have an idea of whether Ituran Location and Control's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Ituran Location and Control's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Ituran Location and Control generated enough free cash flow to afford its dividend. Luckily it paid out just 24% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Ituran Location and Control paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Ituran Location and Control's earnings are down 2.7% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ituran Location and Control has delivered 6.1% dividend growth per year on average over the past 10 years.

To Sum It Up

Has Ituran Location and Control got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Ituran Location and Control's dividend merits.

In light of that, while Ituran Location and Control has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Ituran Location and Control that we recommend you consider before investing in the business.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com