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Negative EPS and still paying a dividend

Discussion in 'Shares' started by benbegg, 15th Sep, 2009.

  1. benbegg

    benbegg Active Member

    Joined:
    18th Mar, 2007
    Posts:
    32
    Location:
    Brisbane, QLD
    If a Co. has -ve EPS and is still paying a dividend, does this mean it is paying the dividend from a loan? Shouldn't the EPS be greater than the DPS for the Co. to survive long term?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    9th Jun, 2005
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    Location:
    Sydney, Australia
    Not necessarily from a loan - could be from capital (ie cash they have sitting in the bank).

    Yes, it is not sustainable to continually pay dividends from capital, but as a short term strategy to keep shareholders happy (and maintain share price), it seems to be fairly common.
     
  3. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    A good sniff test is to look at the level of franking. If it's always been 100% franked and is still 100% franked, then the div is probably coming from previously retained profits. If it's always been 100% and suddenly drops dramatically for no apparent reason, then it's time to be wary.