Do These 3 Checks Before Buying FSA Group Limited (ASX:FSA) For Its Upcoming Dividend

FSA Group Limited (ASX:FSA) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase FSA Group's shares before the 7th of March in order to receive the dividend, which the company will pay on the 15th of March.

The company's next dividend payment will be AU$0.035 per share, and in the last 12 months, the company paid a total of AU$0.07 per share. Looking at the last 12 months of distributions, FSA Group has a trailing yield of approximately 7.2% on its current stock price of AU$0.97. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for FSA Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year FSA Group paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit FSA Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. FSA Group's earnings per share have fallen at approximately 7.7% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. FSA Group has delivered 0.7% dividend growth per year on average over the past 10 years.

The Bottom Line

Is FSA Group worth buying for its dividend? Earnings per share are in decline and FSA Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. FSA Group doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering FSA Group as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 6 warning signs we've spotted with FSA Group (including 2 which are significant).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.