Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see D4t4 Solutions Plc (LON:D4T4) is about to trade ex-dividend in the next day or so. This means that investors who purchase shares on or after the 23rd of July will not receive the dividend, which will be paid on the 28th of August.
D4t4 Solutions’s next dividend payment will be UK£0.019 per share, on the back of last year when the company paid a total of UK£0.027 to shareholders. Last year’s total dividend payments show that D4t4 Solutions has a trailing yield of 1.1% on the current share price of £2.325. If you buy this business for its dividend, you should have an idea of whether D4t4 Solutions’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. D4t4 Solutions is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 64% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s positive to see that D4t4 Solutions’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see D4t4 Solutions’s earnings have been skyrocketing, up 47% per annum for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. D4t4 Solutions has delivered 9.3% dividend growth per year on average over the past ten years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is D4t4 Solutions an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, D4t4 Solutions paid out less than half its earnings and a bit over half its free cash flow. It’s a promising combination that should mark this company worthy of closer attention.
So while D4t4 Solutions looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For example, we’ve found 2 warning signs for D4t4 Solutions (1 doesn’t sit too well with us!) that deserve your attention before investing in the 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.
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This article by Simply Wall St is general in nature. 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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