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It looks like Newtek Business Services Corp. (NASDAQ:NEWT) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Newtek Business Services investors that purchase the stock on or after the 14th of June will not receive the dividend, which will be paid on the 30th of June.
The company's next dividend payment will be US$0.70 per share. Last year, in total, the company distributed US$2.05 to shareholders. Last year's total dividend payments show that Newtek Business Services has a trailing yield of 5.5% on the current share price of $37.13. If you buy this business for its dividend, you should have an idea of whether Newtek Business Services's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Newtek Business Services paid out 64% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Newtek Business Services's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Newtek Business Services has delivered 4.7% dividend growth per year on average over the past six years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Newtek Business Services? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
So if you're still interested in Newtek Business Services despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Newtek Business Services is showing 6 warning signs in our investment analysis, and 2 of those are a bit concerning...
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.
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