Here's Why We're Wary Of Buying BK Technologies' (NYSEMKT:BKTI) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see BK Technologies Corporation (NYSEMKT:BKTI) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 31st of December will not receive the dividend, which will be paid on the 19th of January.

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. Last year's total dividend payments show that BK Technologies has a trailing yield of 2.6% on the current share price of $3.05. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for BK Technologies

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. 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BK Technologies's dividend payments per share have declined at 26% per year on average over the past five 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 BK Technologies's balance sheet health here.

Final Takeaway

Is BK Technologies an attractive dividend stock, or better left on the shelf? 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. It's not that we think BK Technologies is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with BK Technologies. For example, we've found 3 warning signs for BK Technologies (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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