Don't Buy GiG Works Inc. (TSE:2375) For Its Next Dividend Without Doing These Checks

It looks like GiG Works Inc. (TSE:2375) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase GiG Works' shares on or after the 30th of October, you won't be eligible to receive the dividend, when it is paid on the 16th of January.

The company's next dividend payment will be JP¥5.00 per share. Last year, in total, the company distributed JP¥5.00 to shareholders. Based on the last year's worth of payments, GiG Works has a trailing yield of 1.6% on the current stock price of JP¥308.00. 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! As a result, readers should always check whether GiG Works has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for GiG Works

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GiG Works lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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 cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit GiG Works paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. GiG Works was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, GiG Works has lifted its dividend by approximately 17% a year on average.

Get our latest analysis on GiG Works's balance sheet health here.

To Sum It Up

Is GiG Works an attractive dividend stock, or better left on the shelf? It's hard to get used to GiG Works 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 GiG Works.

With that being said, if you're still considering GiG Works as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that GiG Works is showing 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

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.