London Security plc (LON:LSC) Is About To Go Ex-Dividend, And It Pays A 1.9% Yield

London Security plc (LON:LSC) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 31st of October will not receive the dividend, which will be paid on the 28th of November.

London Security's next dividend payment will be UK£0.4 per share, and in the last 12 months, the company paid a total of UK£0.8 per share. Based on the last year's worth of payments, London Security stock has a trailing yield of around 3.7% on the current share price of £21.6. If you buy this business for its dividend, you should have an idea of whether London Security's dividend is reliable and sustainable. As a result, readers should always check whether London Security has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for London Security

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. London Security paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether London Security generated enough free cash flow to afford its dividend. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see London Security earnings per share are up 3.5% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. London Security has delivered 21% dividend growth per year on average over the past eight years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has London Security got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and London Security paid out less than half its profits and more than half its free cash flow as dividends over the last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of London Security's dividend merits.

Keen to explore more data on London Security's financial performance? Check out our visualisation of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.