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Dividend Investors: Don't Be Too Quick To Buy GR Engineering Services Limited (ASX:GNG) For Its Upcoming Dividend

Simply Wall St
·4 mins read

It looks like GR Engineering Services Limited (ASX:GNG) is about to go ex-dividend in the next four days. Investors can purchase shares before the 8th of October in order to be eligible for this dividend, which will be paid on the 21st of October.

GR Engineering Services's next dividend payment will be AU$0.04 per share. Last year, in total, the company distributed AU$0.06 to shareholders. Based on the last year's worth of payments, GR Engineering Services stock has a trailing yield of around 5.4% on the current share price of A$1.12. If you buy this business for its dividend, you should have an idea of whether GR Engineering Services's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for GR Engineering Services

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. GR Engineering Services 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If GR Engineering Services 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. It paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. GR Engineering Services 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. GR Engineering Services has seen its dividend decline 3.1% 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.

We update our analysis on GR Engineering Services every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is GR Engineering Services an attractive dividend stock, or better left on the shelf? It's hard to get used to GR Engineering Services paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of GR Engineering Services.

Although, if you're still interested in GR Engineering Services and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 2 warning signs for GR Engineering Services you should be aware of.

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.

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.

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