Do These 3 Checks Before Buying Platinum Investment Management Limited (ASX:PTM) For Its Upcoming Dividend

It looks like Platinum Investment Management Limited (ASX:PTM) is about to go ex-dividend in the next day or so. 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. Therefore, if you purchase Platinum Investment Management's shares on or after the 31st of August, you won't be eligible to receive the dividend, when it is paid on the 15th of September.

The company's next dividend payment will be AU$0.07 per share, and in the last 12 months, the company paid a total of AU$0.14 per share. Calculating the last year's worth of payments shows that Platinum Investment Management has a trailing yield of 9.3% on the current share price of A$1.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Platinum Investment Management has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Platinum Investment Management

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Platinum Investment Management paid out 99% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Platinum Investment Management's earnings per share have dropped 15% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Platinum Investment Management's dividend payments per share have declined at 4.4% 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.

To Sum It Up

Is Platinum Investment Management worth buying for its dividend? Not only are earnings per share shrinking, but Platinum Investment Management is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Platinum Investment Management. Case in point: We've spotted 2 warning signs for Platinum Investment Management you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.