Read This Before Considering Card Factory plc (LON:CARD) For Its Upcoming UK£0.012 Dividend

Card Factory plc (LON:CARD) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Card Factory's shares on or after the 31st of October will not receive the dividend, which will be paid on the 11th of December.

The company's upcoming dividend is UK£0.012 a share, following on from the last 12 months, when the company distributed a total of UK£0.024 per share to shareholders. Last year's total dividend payments show that Card Factory has a trailing yield of 2.6% on the current share price of UK£0.906. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Card Factory

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Card Factory paying out a modest 48% of its 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 24% of its free cash flow as dividends last year, which is conservatively low.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Card Factory's earnings per share have dropped 5.3% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Card Factory has seen its dividend decline 6.3% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Should investors buy Card Factory for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Card Factory from a dividend perspective.

So while Card Factory looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Card Factory that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.