Stock Analysis

FW Thorpe Plc (LON:TFW) Goes Ex-Dividend Soon

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see FW Thorpe Plc (LON:TFW) is about to trade ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase FW Thorpe's shares on or after the 23rd of March will not receive the dividend, which will be paid on the 21st of April.

The company's next dividend payment will be UK£0.016 per share, and in the last 12 months, the company paid a total of UK£0.085 per share. Looking at the last 12 months of distributions, FW Thorpe has a trailing yield of approximately 2.2% on its current stock price of £3.795. If you buy this business for its dividend, you should have an idea of whether FW Thorpe's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for FW Thorpe

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. FW Thorpe paid out a comfortable 34% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 97% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While FW Thorpe's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to FW Thorpe's ability to maintain its dividend.

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

AIM:TFW Historic Dividend March 19th 2023

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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see FW Thorpe earnings per share are up 8.0% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, FW Thorpe has lifted its dividend by approximately 16% a year on average. 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid FW Thorpe? FW Thorpe delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 97% of its cash flow over the last year, which is a mediocre outcome. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about FW Thorpe's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 1 warning sign for FW Thorpe you should know about.

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