Don't Race Out To Buy Flowtech Fluidpower plc (LON:FLO) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Flowtech Fluidpower plc (LON:FLO) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Meaning, you will need to purchase Flowtech Fluidpower's shares before the 20th of June to receive the dividend, which will be paid on the 19th of July.

The company's next dividend payment will be UK£0.022 per share, on the back of last year when the company paid a total of UK£0.022 to shareholders. Based on the last year's worth of payments, Flowtech Fluidpower has a trailing yield of 2.0% on the current stock price of UK£1.08. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Flowtech Fluidpower

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Flowtech Fluidpower lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 22% of its free cash flow last year.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Flowtech Fluidpower was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Flowtech Fluidpower's dividend payments per share have declined at 4.1% 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.

Remember, you can always get a snapshot of Flowtech Fluidpower's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Flowtech Fluidpower an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Flowtech Fluidpower don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 3 warning signs for Flowtech Fluidpower (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

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.

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