Dividend Investors: Don't Be Too Quick To Buy Strix Group Plc (LON:KETL) For Its Upcoming Dividend

Readers hoping to buy Strix Group Plc (LON:KETL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Strix Group's shares before the 16th of November to receive the dividend, which will be paid on the 29th of December.

The company's next dividend payment will be UK£0.009 per share, on the back of last year when the company paid a total of UK£0.042 to shareholders. Looking at the last 12 months of distributions, Strix Group has a trailing yield of approximately 5.9% on its current stock price of £0.698. 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 Strix Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Strix Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Strix Group paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Strix Group generated enough free cash flow to afford its dividend. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Strix Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Strix Group's 15% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

We'd also point out that Strix Group issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Strix Group has seen its dividend decline 8.3% per annum on average over the past six years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Strix Group got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Strix Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Strix Group, it's worth knowing the risks this business faces. Our analysis shows 5 warning signs for Strix Group that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.