Here's Why We're Wary Of Buying G1 Secure Solutions' (TLV:GOSS) For Its Upcoming Dividend

G1 Secure Solutions Ltd (TLV:GOSS) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 2nd of December will not receive this dividend, which will be paid on the 10th of December.

G1 Secure Solutions's upcoming dividend is ₪0.12 a share, following on from the last 12 months, when the company distributed a total of ₪0.57 per share to shareholders. Based on the last year's worth of payments, G1 Secure Solutions stock has a trailing yield of around 8.4% on the current share price of ₪6.826. 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 G1 Secure Solutions

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. G1 Secure Solutions distributed an unsustainably high 114% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether G1 Secure Solutions generated enough free cash flow to afford its dividend. Dividends consumed 54% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while G1 Secure Solutions's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit G1 Secure Solutions paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see G1 Secure Solutions earnings per share are up 2.3% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last two years, G1 Secure Solutions has lifted its dividend by approximately 155% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has G1 Secure Solutions got what it takes to maintain its dividend payments? While earnings per share have been growing slowly, G1 Secure Solutions is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in G1 Secure Solutions despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 2 warning signs for G1 Secure Solutions 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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