Should You Buy Plus500 Ltd. (LON:PLUS) 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 Plus500 Ltd. (LON:PLUS) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 25th of February will not receive the dividend, which will be paid on the 12th of July.

Plus500's next dividend payment will be US$0.83 per share, and in the last 12 months, the company paid a total of US$1.50 per share. Based on the last year's worth of payments, Plus500 stock has a trailing yield of around 7.5% on the current share price of £14.22. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Plus500

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. Fortunately Plus500's payout ratio is modest, at just 32% of profit.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Plus500 has grown its earnings rapidly, up 41% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Plus500 has delivered an average of 31% per year annual increase in its dividend, based on the past seven years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Plus500 for the upcoming dividend? Companies like Plus500 that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Plus500 appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Plus500 for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Plus500 (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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