Readers hoping to buy M Winkworth PLC (LON:WINK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 24th of October in order to receive the dividend, which the company will pay on the 21st of November.
M Winkworth's next dividend payment will be UK£0.02 per share, and in the last 12 months, the company paid a total of UK£0.08 per share. Based on the last year's worth of payments, M Winkworth stock has a trailing yield of around 6.3% on the current share price of £1.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that M Winkworth's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, M Winkworth has lifted its dividend by approximately 5.8% a year on average.
To Sum It Up
Is M Winkworth an attractive dividend stock, or better left on the shelf? While earnings per share are flat, at least M Winkworth has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Want to learn more about M Winkworth's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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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