TheWorks.co.uk plc (LON:WRKS) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 29th of August in order to receive the dividend, which the company will pay on the 24th of September.
TheWorks.co.uk's next dividend payment will be UK£0.024 per share, on the back of last year when the company paid a total of UK£0.048 to shareholders. Based on the last year's worth of payments, TheWorks.co.uk has a trailing yield of 5.7% on the current stock price of £0.835. If you buy this business for its dividend, you should have an idea of whether TheWorks.co.uk's dividend is reliable and sustainable. As a result, readers should always check whether TheWorks.co.uk has been able to grow its dividends, or if the dividend might be cut.
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. TheWorks.co.uk distributed an unsustainably high 188% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 57% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and TheWorks.co.uk fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend.
We'd also point out that TheWorks.co.uk issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Given that TheWorks.co.uk has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Has TheWorks.co.uk got what it takes to maintain its dividend payments? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. Bottom line: TheWorks.co.uk has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Curious what other investors think of TheWorks.co.uk? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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