It Might Not Be A Great Idea To Buy M Winkworth PLC (LON:WINK) For Its Next Dividend

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 21st of January in order to receive the dividend, which the company will pay on the 18th of February.

M Winkworth's next dividend payment will be UK£0.018 per share, on the back of last year when the company paid a total of UK£0.084 to shareholders. Calculating the last year's worth of payments shows that M Winkworth has a trailing yield of 4.5% on the current share price of £1.475. 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 investigate whether M Winkworth can afford its dividend, and if the dividend could grow.

View our latest analysis for M Winkworth

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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (52%) 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.

Click here to see how much of its profit M Winkworth paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see M Winkworth's earnings per share have been shrinking at 4.7% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, M Winkworth has lifted its dividend by approximately 3.9% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Should investors buy M Winkworth for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least M Winkworth's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in M Winkworth and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 3 warning signs for M Winkworth (of which 1 shouldn't be ignored!) you should know about.

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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