Is It Worth Considering K3 Capital Group PLC (LON:K3C) For Its Upcoming Dividend?

Readers hoping to buy K3 Capital Group PLC (LON:K3C) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 25th of February to receive the dividend, which will be paid on the 17th of March.

K3 Capital Group's next dividend payment will be UK£0.03 per share. Last year, in total, the company distributed UK£0.075 to shareholders. Looking at the last 12 months of distributions, K3 Capital Group has a trailing yield of approximately 2.7% on its current stock price of £2.79. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether K3 Capital Group can afford its dividend, and if the dividend could grow.

See our latest analysis for K3 Capital Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether K3 Capital Group generated enough free cash flow to afford its dividend. Over the last year it paid out 57% of its free cash flow as dividends, within the usual 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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. K3 Capital Group's earnings per share have plummeted approximately 41% a year over the previous five years.

K3 Capital Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. K3 Capital Group has delivered 19% dividend growth per year on average over the past three years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is K3 Capital Group worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least K3 Capital Group's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of K3 Capital Group.

So if you're still interested in K3 Capital Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 5 warning signs with K3 Capital Group (at least 1 which is significant), and understanding these should be part of your investment process.

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.

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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. 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.
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