Here's Why We're Wary Of Buying Moonpig Group's (LON:MOON) For Its Upcoming Dividend

It looks like Moonpig Group PLC (LON:MOON) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Moonpig Group's shares before the 23rd of October in order to receive the dividend, which the company will pay on the 20th of November.

The company's next dividend payment will be UK£0.02 per share, and in the last 12 months, the company paid a total of UK£0.04 per share. Calculating the last year's worth of payments shows that Moonpig Group has a trailing yield of 1.9% on the current share price of UK£2.15. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Moonpig Group's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Moonpig Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 5.2% of its free cash flow last year.

Check out our latest analysis for Moonpig Group

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Moonpig Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Given that Moonpig Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.

We update our analysis on Moonpig Group every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Should investors buy Moonpig Group for the upcoming dividend? It's hard to get used to Moonpig Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Moonpig Group.

So if you're still interested in Moonpig Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Moonpig Group has 2 warning signs we think you should be aware of.

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.