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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Strix Group Plc (LON:KETL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Thus, you can purchase Strix Group's shares before the 30th of September in order to receive the dividend, which the company will pay on the 7th of October.
The company's upcoming dividend is UK£0.028 a share, following on from the last 12 months, when the company distributed a total of UK£0.079 per share to shareholders. Based on the last year's worth of payments, Strix Group stock has a trailing yield of around 2.2% on the current share price of £3.615. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Strix Group has been able to grow its dividends, or if the dividend might be cut.
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. Strix Group paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Strix Group generated enough free cash flow to afford its dividend. The company paid out 102% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
While Strix Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Strix Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Strix Group's earnings per share have been shrinking at 3.2% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Strix Group has increased its dividend at approximately 3.4% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Has Strix Group got what it takes to maintain its dividend payments? Strix Group had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Strix Group.
With that being said, if you're still considering Strix Group as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 4 warning signs for Strix Group that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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