LifeWorks (TSE:LWRK) Is Due To Pay A Dividend Of CA$0.065

LifeWorks Inc. (TSE:LWRK) has announced that it will pay a dividend of CA$0.065 per share on the 16th of August. The dividend yield will be 2.2% based on this payment which is still above the industry average.

Check out our latest analysis for LifeWorks

LifeWorks Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 201% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 52%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next 12 months is set to see EPS grow by 89.8%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 106%, which probably can't continue putting some pressure on the balance sheet.

LifeWorks Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was CA$0.94 in 2011, and the most recent fiscal year payment was CA$0.78. Doing the maths, this is a decline of about 1.9% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 4.8% per year. Paying more than double what it is paying out, and not showing a track record of being able to grow earnings, we can only see dividend cuts in the future.

Our Thoughts On LifeWorks' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about LifeWorks' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for LifeWorks (of which 1 is a bit unpleasant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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