PLC moldings (LON: CGS) the stock is about to trade ex-dividend in 4 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. As a result, Castings investors who buy the shares on or after July 22 will not receive the dividend, which will be paid on August 23.
The company’s forthcoming dividend is £ 0.12 per share, following the last 12 months when the company has distributed a total of £ 0.15 per share to shareholders. Looking at the last 12 months of distributions, Castings has a sliding return of around 3.7% on its current price of £ 4.14. If you are buying this company for its dividend, you should know if Castings’ dividend is reliable and sustainable. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
Dividends are usually paid out of company profits. If a company pays more dividends than it has made a profit, then the dividend could be unsustainable. Castings have paid 160% of profits over the past year, which in our opinion is generally not sustainable unless there are mitigating features such as unusually high cash flow or a balance. important cash flow. A useful secondary check can be to assess whether Castings has generated enough free cash flow to pay its dividend. It paid out 91% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need more cash than profits – the expenses don’t pay for themselves – so it’s not great to see them shell out so much of their cash.
Cash is slightly more important than earnings from a dividend perspective, but since Castings’ payments were not well covered by earnings or cash flow, we are concerned about the sustainability of this dividend.
Have profits and dividends increased?
Companies with declining profits are tricky from a dividend standpoint. If profits fall enough, the company could be forced to cut its dividend. Readers will then understand why we are concerned that Castings’ earnings per share have fallen 24% per year over the past five years. Ultimately, when earnings per share declines, the size of the pie from which dividends can be paid declines.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Since our data began 10 years ago, Castings has increased its dividend by around 3.6% per year on average. It’s intriguing, but the combination of growing dividends despite falling profits can usually only be achieved by paying a higher percentage of the profits. Castings is already paying out 160% of its profits, and with declining profits, we think this dividend is unlikely to grow quickly in the future.
Should investors buy Castings for the next dividend? It looks like an unattractive opportunity, with its earnings per share falling, while paying an uncomfortably high percentage of its earnings (160%) and cash flow as dividends. This is a clearly suboptimal combination which generally suggests that the dividend may be reduced. If not now, then maybe in the future. This is not an attractive combination from a dividend standpoint, and we are inclined to forgo this one for the time being.
With that in mind, if Castings’ low dividend characteristics don’t scare you, it’s worth being aware of the risks involved in this business. Every business has risks, and we have spotted 3 warning signs for Castings (1 of which should not be ignored!) that you should know.
A common investment mistake is to buy the first interesting stock you see. Here you can find a list of promising dividend-paying stocks with a yield above 2% and a future dividend.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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