Should Income Investors Look At Flight Centre Travel Group Limited (ASX:FLT) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Flight Centre Travel Group Limited (ASX:FLT) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Flight Centre Travel Group's shares before the 17th of September in order to be eligible for the dividend, which will be paid on the 16th of October.

The company's next dividend payment will be AU$0.29 per share, and in the last 12 months, the company paid a total of AU$0.40 per share. Calculating the last year's worth of payments shows that Flight Centre Travel Group has a trailing yield of 3.3% on the current share price of AU$12.12. If you buy this business for its dividend, you should have an idea of whether Flight Centre Travel Group's dividend is reliable and sustainable. As a result, readers should always check whether Flight Centre Travel Group has been able to grow its dividends, or if the dividend might be cut.

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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. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Flight Centre Travel Group generated enough free cash flow to afford its dividend. It paid out an unsustainably high 249% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Flight Centre Travel Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Flight Centre Travel Group's ability to maintain its dividend.

See our latest analysis for Flight Centre Travel Group

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Flight Centre Travel Group has grown its earnings rapidly, up 73% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Flight Centre Travel Group's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring. Flight Centre Travel Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Flight Centre Travel Group got what it takes to maintain its dividend payments? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. So, you might think that Flight Centre Travel Group buying back stock, growing its EPS, and retaining profits within its business is a good combination. However, we note with some concern that it paid out 249% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. In summary, while it has some positive characteristics, we're not inclined to race out and buy Flight Centre Travel Group today.

With that being said, if dividends aren't your biggest concern with Flight Centre Travel Group, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for Flight Centre Travel Group that you should be aware of before investing in their 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.