Here's Why We're Wary Of Buying Oxford Square Capital's (NASDAQ:OXSQ) For Its Upcoming Dividend

Oxford Square Capital Corp. (NASDAQ:OXSQ) is about to trade ex-dividend in the next two days. Ex-dividend means that investors that purchase the stock on or after the 16th of March will not receive this dividend, which will be paid on the 31st of March.

Oxford Square Capital's next dividend payment will be US$0.035 per share. Last year, in total, the company distributed US$0.42 to shareholders. Calculating the last year's worth of payments shows that Oxford Square Capital has a trailing yield of 9.8% on the current share price of $4.29. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Oxford Square Capital

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. Oxford Square Capital 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.

Click here to see how much of its profit Oxford Square Capital paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Oxford Square Capital reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Oxford Square Capital's dividend payments per share have declined at 6.2% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on Oxford Square Capital's balance sheet health here.

Final Takeaway

Has Oxford Square Capital got what it takes to maintain its dividend payments? It's hard to get past the idea of Oxford Square Capital paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. Oxford Square Capital doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Oxford Square Capital don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 3 warning signs for Oxford Square Capital (1 is a bit concerning!) that deserve your attention before investing in the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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