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Readers hoping to buy LifeWorks Inc. (TSE:LWRK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase LifeWorks' shares before the 29th of July in order to be eligible for the dividend, which will be paid on the 16th of August.
The company's next dividend payment will be CA$0.065 per share, and in the last 12 months, the company paid a total of CA$0.78 per share. Calculating the last year's worth of payments shows that LifeWorks has a trailing yield of 2.2% on the current share price of CA$35.34. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether LifeWorks 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. LifeWorks paid out a disturbingly high 201% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while LifeWorks'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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at LifeWorks, with earnings per share up 3.2% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. LifeWorks has seen its dividend decline 1.9% per annum on average over the past 10 years, which is not great to see.
From a dividend perspective, should investors buy or avoid LifeWorks? While earnings per share have been growing slowly, LifeWorks is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not that we think LifeWorks is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in LifeWorks despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 4 warning signs for LifeWorks that we strongly recommend you have a look at before investing in the company.
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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