Dividend Investors: Don't Be Too Quick To Buy Network-1 Technologies, Inc. (NYSEMKT:NTIP) For Its Upcoming Dividend

Network-1 Technologies, Inc. (NYSEMKT:NTIP) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 15th of March to receive the dividend, which will be paid on the 31st of March.

Network-1 Technologies's next dividend payment will be US$0.05 per share, on the back of last year when the company paid a total of US$0.10 to shareholders. Based on the last year's worth of payments, Network-1 Technologies has a trailing yield of 3.0% on the current stock price of $3.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Network-1 Technologies has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Network-1 Technologies

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. Network-1 Technologies reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Network-1 Technologies didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year, it paid out dividends equivalent to 313% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Network-1 Technologies intends to continue funding this dividend, or if it could be forced to cut the payment.

Network-1 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 Network-1 Technologies 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 fall far enough, the company could be forced to cut its dividend. Network-1 Technologies 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Network-1 Technologies's dividend payments are effectively flat on where they were four years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Get our latest analysis on Network-1 Technologies's balance sheet health here.

The Bottom Line

Has Network-1 Technologies got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Bottom line: Network-1 Technologies has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Network-1 Technologies despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Network-1 Technologies is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning...

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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