Read This Before Considering World Fitness Services Ltd. (TWSE:2762) For Its Upcoming NT$2.250777 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see World Fitness Services Ltd. (TWSE:2762) is about to trade ex-dividend in the next three 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. 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. Thus, you can purchase World Fitness Services' shares before the 28th of November in order to receive the dividend, which the company will pay on the 18th of December.

The company's upcoming dividend is NT$2.250777 a share, following on from the last 12 months, when the company distributed a total of NT$5.78 per share to shareholders. Calculating the last year's worth of payments shows that World Fitness Services has a trailing yield of 6.1% on the current share price of NT$95.50. If you buy this business for its dividend, you should have an idea of whether World Fitness Services's dividend is reliable and sustainable. As a result, readers should always check whether World Fitness Services has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for World Fitness Services

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. World Fitness Services paid out 157% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. It paid out more than half (70%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while World Fitness Services'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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see World Fitness Services's earnings have been skyrocketing, up 27% per annum for the past five years.

We'd also point out that World Fitness Services 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.

Unfortunately World Fitness Services has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Has World Fitness Services got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. In summary, it's hard to get excited about World Fitness Services from a dividend perspective.

So if you want to do more digging on World Fitness Services, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with World Fitness Services and understanding them should be part of your investment process.

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.