It Might Not Be A Great Idea To Buy Appreciate Group plc (LON:APP) For Its Next Dividend

By
Simply Wall St
Published
August 21, 2021
AIM:APP
Source: Shutterstock

Appreciate Group plc (LON:APP) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Appreciate Group's shares before the 26th of August to receive the dividend, which will be paid on the 1st of October.

The company's next dividend payment will be UK£0.006 per share, on the back of last year when the company paid a total of UK£0.012 to shareholders. Last year's total dividend payments show that Appreciate Group has a trailing yield of 4.4% on the current share price of £0.27. If you buy this business for its dividend, you should have an idea of whether Appreciate Group'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 Appreciate Group

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. Last year, Appreciate Group paid out 219% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
AIM:APP Historic Dividend August 22nd 2021

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. Appreciate Group's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 39% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Appreciate Group's dividend payments per share have declined at 3.4% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Appreciate Group got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Appreciate Group is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Although, if you're still interested in Appreciate Group and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 5 warning signs for Appreciate Group you should know about.

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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