We Wouldn't Be Too Quick To Buy J. Smart & Co. (Contractors) PLC (LON:SMJ) Before It Goes Ex-Dividend

J. Smart & Co. (Contractors) PLC (LON:SMJ) stock is about to trade ex-dividend in three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase J. Smart (Contractors)'s shares before the 1st of May in order to receive the dividend, which the company will pay on the 2nd of June.

The company's next dividend payment will be UK£0.0096 per share, on the back of last year when the company paid a total of UK£0.032 to shareholders. Based on the last year's worth of payments, J. Smart (Contractors) has a trailing yield of 2.7% on the current stock price of UK£1.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow.

Check out our latest analysis for J. Smart (Contractors)

Click here to see how much of its profit J. Smart (Contractors) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by J. Smart (Contractors)'s 23% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

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, J. Smart (Contractors) has lifted its dividend by approximately 0.9% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid J. Smart (Contractors)? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not that we think J. Smart (Contractors) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in J. Smart (Contractors) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 4 warning signs for J. Smart (Contractors) (1 shouldn't be ignored) you should be aware of.

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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.