Here's Why We're Wary Of Buying Guardian Capital Group's (TSE:GCG.A) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Guardian Capital Group Limited (TSE:GCG.A) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Guardian Capital Group investors that purchase the stock on or after the 11th of October will not receive the dividend, which will be paid on the 18th of October.

The company's next dividend payment will be CA$0.37 per share. Last year, in total, the company distributed CA$1.48 to shareholders. Looking at the last 12 months of distributions, Guardian Capital Group has a trailing yield of approximately 3.6% on its current stock price of CA$41.03. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Guardian Capital Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Guardian Capital Group

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. Guardian Capital Group is paying out an acceptable 55% of its profit, a common payout level among most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Guardian Capital Group's earnings per share have fallen at approximately 13% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Guardian Capital Group has lifted its dividend by approximately 21% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is Guardian Capital Group an attractive dividend stock, or better left on the shelf? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that in mind though, if the poor dividend characteristics of Guardian Capital Group don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 2 warning signs for Guardian Capital Group (of which 1 is a bit concerning!) you should know about.

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.