Dividend Investors: Don't Be Too Quick To Buy Flowtech Fluidpower plc (LON:FLO) For Its Upcoming Dividend
Flowtech Fluidpower plc (LON:FLO) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Flowtech Fluidpower's shares before the 22nd of June in order to receive the dividend, which the company will pay on the 21st of July.
The company's upcoming dividend is UK£0.021 a share, following on from the last 12 months, when the company distributed a total of UK£0.021 per share to shareholders. Looking at the last 12 months of distributions, Flowtech Fluidpower has a trailing yield of approximately 1.9% on its current stock price of £1.0825. If you buy this business for its dividend, you should have an idea of whether Flowtech Fluidpower's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Flowtech Fluidpower
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Flowtech Fluidpower lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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 Flowtech Fluidpower 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. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Flowtech Fluidpower 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. Flowtech Fluidpower has seen its dividend decline 5.0% per annum on average over the past nine years, which is not great to see. 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.
Remember, you can always get a snapshot of Flowtech Fluidpower's financial health, by checking our visualisation of its financial health, here.
Final Takeaway
Should investors buy Flowtech Fluidpower for the upcoming dividend? It's hard to get used to Flowtech Fluidpower paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Flowtech Fluidpower and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for Flowtech Fluidpower (of which 1 can't be ignored!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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