Don't Race Out To Buy BK Technologies Corporation (NYSEMKT:BKTI) Just Because It's Going Ex-Dividend

By
Simply Wall St
Published
September 26, 2020
NYSEAM:BKTI
Source: Shutterstock

It looks like BK Technologies Corporation (NYSEMKT:BKTI) is about to go ex-dividend in the next four days. Investors can purchase shares before the 2nd of October in order to be eligible for this dividend, which will be paid on the 19th of October.

BK Technologies's next dividend payment will be US$0.02 per share, and in the last 12 months, the company paid a total of US$0.08 per share. Calculating the last year's worth of payments shows that BK Technologies has a trailing yield of 2.7% on the current share price of $2.96. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for BK Technologies

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BK Technologies's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its 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. It paid out 109% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

BK Technologies does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

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

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AMEX:BKTI Historic Dividend September 27th 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. BK Technologies 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. BK Technologies has seen its dividend decline 31% per annum on average over the past four years, which is not great to see. 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 BK Technologies's balance sheet health here.

To Sum It Up

Is BK Technologies worth buying for its dividend? It's hard to get used to BK Technologies paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of BK Technologies.

Although, if you're still interested in BK Technologies and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for BK Technologies that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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