Do These 3 Checks Before Buying Foresight Group Holdings Limited (LON:FSG) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Foresight Group Holdings Limited (LON:FSG) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Foresight Group Holdings' shares before the 19th of September in order to receive the dividend, which the company will pay on the 4th of October.

The company's next dividend payment will be UK£0.155 per share, on the back of last year when the company paid a total of UK£0.22 to shareholders. Looking at the last 12 months of distributions, Foresight Group Holdings has a trailing yield of approximately 4.1% on its current stock price of UK£5.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Foresight Group Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Foresight Group Holdings

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 Foresight Group Holdings paid out 97% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Foresight Group Holdings earnings per share are up 7.8% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Foresight Group Holdings has increased its dividend at approximately 135% 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.

Final Takeaway

Should investors buy Foresight Group Holdings for the upcoming dividend? Foresight Group Holdings has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that being said, if you're still considering Foresight Group Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Foresight Group Holdings that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.