Yahoo Finance Do These 3 Checks Before Buying PayPoint plc (LON:PAY) For Its Upcoming Dividend
PayPoint plc (LON:PAY) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, PayPoint investors that purchase the stock on or after the 4th of July will not receive the dividend, which will be paid on the 6th of August.
The company's upcoming dividend is UK£0.096 a share, following on from the last 12 months, when the company distributed a total of UK£0.38 per share to shareholders. Looking at the last 12 months of distributions, PayPoint has a trailing yield of approximately 6.0% on its current stock price of UK£6.36. 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! We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for PayPoint
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. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. 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 discomforted by PayPoint's 5.3% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, PayPoint has increased its dividend at approximately 2.0% a year on average.
To Sum It Up
Should investors buy PayPoint for the upcoming dividend? We're not overly enthused to see PayPoint's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. PayPoint doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
With that in mind though, if the poor dividend characteristics of PayPoint don't faze you, it's worth being mindful of the risks involved with this business. For example, PayPoint has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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.
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