Two Days Left To Buy QinetiQ Group plc (LON:QQ.) Before The Ex-Dividend Date

It looks like QinetiQ Group plc (LON:QQ.) is about to go ex-dividend in the next two 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase QinetiQ Group's shares before the 4th of January in order to be eligible for the dividend, which will be paid on the 2nd of February.

The company's next dividend payment will be UK£0.026 per share, on the back of last year when the company paid a total of UK£0.077 to shareholders. Last year's total dividend payments show that QinetiQ Group has a trailing yield of 2.5% on the current share price of £3.09. If you buy this business for its dividend, you should have an idea of whether QinetiQ Group's dividend is reliable and sustainable. As a result, readers should always check whether QinetiQ Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for QinetiQ 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. That's why it's good to see QinetiQ Group paying out a modest 42% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that QinetiQ Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see QinetiQ Group's earnings per share have dropped 5.2% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, QinetiQ Group has lifted its dividend by approximately 7.3% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid QinetiQ Group? Earnings per share have fallen significantly, although at least QinetiQ Group paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. 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.

So if you want to do more digging on QinetiQ Group, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 1 warning sign for QinetiQ Group that you should be aware of before investing in their 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.