Do These 3 Checks Before Buying Crookes Brothers Limited (JSE:CKS) For Its Upcoming Dividend

Crookes Brothers Limited (JSE:CKS) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Crookes Brothers' shares on or after the 6th of August will not receive the dividend, which will be paid on the 12th of August.

The company's upcoming dividend is R02.00 a share, following on from the last 12 months, when the company distributed a total of R2.00 per share to shareholders. Calculating the last year's worth of payments shows that Crookes Brothers has a trailing yield of 5.4% on the current share price of R036.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Crookes Brothers

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. Crookes Brothers distributed an unsustainably high 135% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

Click here to see how much of its profit Crookes Brothers 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. That's why it's not ideal to see Crookes Brothers's earnings per share have been shrinking at 2.5% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Crookes Brothers dividends are largely the same as they were 10 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.

The Bottom Line

Is Crookes Brothers worth buying for its dividend? Not only are earnings per share shrinking, but Crookes Brothers is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Crookes Brothers 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.

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 Crookes Brothers. Our analysis shows 3 warning signs for Crookes Brothers that we strongly recommend you have a look at before investing in the company.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com