GCM Grosvenor Inc. (NASDAQ:GCMG) is about to trade ex-dividend in the next 4 days. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase GCM Grosvenor's shares on or after the 28th of February, you won't be eligible to receive the dividend, when it is paid on the 15th of March.
The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Looking at the last 12 months of distributions, GCM Grosvenor has a trailing yield of approximately 3.9% on its current stock price of $10.23. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether GCM Grosvenor can afford its dividend, and if the dividend could grow.
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. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why we're optimistic about GCM Grosvenor's earnings, which have ripped higher, up 395% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far.
We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.
We'd also point out that GCM Grosvenor issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Given that GCM Grosvenor has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Is GCM Grosvenor worth buying for its dividend? Earnings per share are growing nicely, and GCM Grosvenor is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Overall, GCM Grosvenor looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while GCM Grosvenor has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 4 warning signs for GCM Grosvenor 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.
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.