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

It looks like Stingray Group Inc. (TSE:RAY.A) is about to go ex-dividend in the next four days. The ex-dividend date is commonly two business days 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 can take two business days or more to settle. Accordingly, Stingray Group investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 13th of June.

The company's upcoming dividend is CA$0.075 a share, following on from the last 12 months, when the company distributed a total of CA$0.30 per share to shareholders. Based on the last year's worth of payments, Stingray Group stock has a trailing yield of around 3.6% on the current share price of CA$8.41. If you buy this business for its dividend, you should have an idea of whether Stingray Group's dividend is reliable and sustainable. So we need to investigate whether Stingray Group can afford its dividend, and if the dividend could grow.

We've discovered 2 warning signs about Stingray Group. View them for free.

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. Stingray Group reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Stingray Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

View our latest analysis for Stingray Group

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Stingray Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Stingray Group has delivered 9.6% dividend growth per year on average over the past 10 years.

We update our analysis on Stingray Group every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy Stingray Group for the upcoming dividend? It's hard to get used to Stingray Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Stingray Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Stingray Group and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for Stingray Group you should know about.

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.