FDM Group (Holdings) plc (LON:FDM) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 6th of August, you won't be eligible to receive this dividend, when it is paid on the 4th of September.
FDM Group (Holdings)'s next dividend payment will be UK£0.18 per share, and in the last 12 months, the company paid a total of UK£0.37 per share. Last year's total dividend payments show that FDM Group (Holdings) has a trailing yield of 4.0% on the current share price of £9.3. 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 FDM Group (Holdings) 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. Last year, FDM Group (Holdings) paid out 107% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether FDM Group (Holdings) generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while FDM Group (Holdings)'s dividends were not covered by profits, at least they are affordable from a cash perspective. 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 with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see FDM Group (Holdings) has grown its earnings rapidly, up 22% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FDM Group (Holdings) has delivered 20% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is FDM Group (Holdings) worth buying for its dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why FDM Group (Holdings) is paying out so much of its profit. In summary, it's hard to get excited about FDM Group (Holdings) from a dividend perspective.
In light of that, while FDM Group (Holdings) has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for FDM Group (Holdings) that we recommend you consider before investing in the business.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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