Readers hoping to buy G1 Secure Solutions Ltd (TLV:GOSS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 24th of August in order to receive the dividend, which the company will pay on the 1st of September.
G1 Secure Solutions's next dividend payment will be ₪0.13 per share, and in the last 12 months, the company paid a total of ₪0.57 per share. Looking at the last 12 months of distributions, G1 Secure Solutions has a trailing yield of approximately 9.4% on its current stock price of ₪6.105. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, G1 Secure Solutions paid out 102% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
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. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see G1 Secure Solutions earnings per share are up 3.2% per annum over the last five years.
Given that G1 Secure Solutions has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Has G1 Secure Solutions got what it takes to maintain its dividend payments? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
With that being said, if you're still considering G1 Secure Solutions as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign 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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