Dividend Investors: Don't Be Too Quick To Buy Anpario plc (LON:ANP) For Its Upcoming Dividend

Readers hoping to buy Anpario plc (LON:ANP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Therefore, if you purchase Anpario's shares on or after the 9th of November, you won't be eligible to receive the dividend, when it is paid on the 24th of November.

The company's next dividend payment will be UK£0.032 per share, and in the last 12 months, the company paid a total of UK£0.11 per share. Based on the last year's worth of payments, Anpario has a trailing yield of 4.5% on the current stock price of £2.325. If you buy this business for its dividend, you should have an idea of whether Anpario's dividend is reliable and sustainable. As a result, readers should always check whether Anpario has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Anpario

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. Last year Anpario paid out 90% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Anpario's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

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. So we're not too excited that Anpario's earnings are down 3.9% a year over the past five years.

We'd also point out that Anpario issued a meaningful number of new shares in the past year. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Anpario has lifted its dividend by approximately 13% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Anpario is already paying out 90% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Should investors buy Anpario for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 90% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not that we think Anpario is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Anpario and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for Anpario (1 is potentially serious!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.