Don't Buy VH Global Sustainable Energy Opportunities plc (LON:GSEO) For Its Next Dividend Without Doing These Checks

VH Global Sustainable Energy Opportunities plc (LON:GSEO) 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. 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. This means that investors who purchase VH Global Sustainable Energy Opportunities' shares on or after the 29th of February will not receive the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be UK£0.0142 per share, and in the last 12 months, the company paid a total of UK£0.055 per share. Based on the last year's worth of payments, VH Global Sustainable Energy Opportunities has a trailing yield of 7.6% on the current stock price of UK£0.73. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for VH Global Sustainable Energy Opportunities

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. VH Global Sustainable Energy Opportunities distributed an unsustainably high 143% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.

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

Click here to see how much of its profit VH Global Sustainable Energy Opportunities paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. From this viewpoint, it's unfortunate that earnings per share have declined 16% over the last year.

VH Global Sustainable Energy Opportunities 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. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, VH Global Sustainable Energy Opportunities has lifted its dividend by approximately 49% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. VH Global Sustainable Energy Opportunities is already paying out 143% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Has VH Global Sustainable Energy Opportunities got what it takes to maintain its dividend payments? Earnings per share are in decline and VH Global Sustainable Energy Opportunities is paying out what we feel is an uncomfortably 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. VH Global Sustainable Energy Opportunities doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering VH Global Sustainable Energy Opportunities as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for VH Global Sustainable Energy Opportunities 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.