Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see FDM Group (Holdings) plc( LON:FDM ) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase FDM Group (Holdings)'s shares before the 4th of June in order to receive the dividend, which the company will pay on the 26th of June.
The company's upcoming dividend is UK£0.04 a share, following on from the last 12 months, when the company distributed a total of UK£0.10 per share to shareholders. Calculating the last year's worth of payments shows that FDM Group (Holdings) has a trailing yield of 8.5% on the current share price of UK£1.18. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether FDM Group (Holdings) has been able to grow its dividends, or if the dividend might be cut.
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. FDM Group (Holdings) distributed an unsustainably high 193% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
As FDM Group (Holdings)'s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
View our latest analysis for FDM Group (Holdings)
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. If earnings fall far enough, the company could be forced to cut its dividend. FDM Group (Holdings)'s earnings per share have fallen at approximately 29% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. FDM Group (Holdings)'s dividend payments per share have declined at 4.6% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Final Takeaway
Is FDM Group (Holdings) an attractive dividend stock, or better left on the shelf? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (193%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of FDM Group (Holdings).
With that in mind though, if the poor dividend characteristics of FDM Group (Holdings) don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for FDM Group (Holdings) and you should be aware of them before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
