Why You Might Be Interested In TheWorks.co.uk plc (LON:WRKS) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TheWorks.co.uk plc (LON:WRKS) is about to trade ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase TheWorks.co.uk's shares on or after the 5th of October, you won't be eligible to receive the dividend, when it is paid on the 2nd of November.

The company's next dividend payment will be UK£0.016 per share. Last year, in total, the company distributed UK£0.016 to shareholders. Based on the last year's worth of payments, TheWorks.co.uk has a trailing yield of 4.2% on the current stock price of £0.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether TheWorks.co.uk can afford its dividend, and if the dividend could grow.

Check out our latest analysis for TheWorks.co.uk

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. TheWorks.co.uk has a low and conservative payout ratio of just 19% of its income after tax. A useful secondary check can be to evaluate whether TheWorks.co.uk generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 7.2% of its cash flow last year.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, TheWorks.co.uk's earnings per share have been growing at 16% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TheWorks.co.uk has seen its dividend decline 7.8% per annum on average over the past five years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Has TheWorks.co.uk got what it takes to maintain its dividend payments? It's great that TheWorks.co.uk is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while TheWorks.co.uk has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 5 warning signs we've spotted with TheWorks.co.uk (including 1 which is concerning).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.