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Do These 3 Checks Before Buying Network-1 Technologies, Inc. (NYSEMKT:NTIP) For Its Upcoming Dividend

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Network-1 Technologies, Inc. (NYSEMKT:NTIP) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 13th of March, you won't be eligible to receive this dividend, when it is paid on the 31st of March.

Network-1 Technologies's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.10 per share. Based on the last year's worth of payments, Network-1 Technologies stock has a trailing yield of around 4.5% on the current share price of $2.24. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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.

Check out our latest analysis for Network-1 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. Network-1 Technologies reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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.

Click here to see how much of its profit Network-1 Technologies paid out over the last 12 months.

AMEX:NTIP Historical Dividend Yield, March 8th 2020

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Network-1 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. It looks like the Network-1 Technologies dividends are largely the same as they were three years ago.

We update our analysis on Network-1 Technologies every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy Network-1 Technologies for the upcoming dividend? 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." It's not that we think Network-1 Technologies is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Network-1 Technologies don't faze you, it's worth being mindful of the risks involved with this business. We've identified 4 warning signs with Network-1 Technologies (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.