GlobalData Plc (LON:DATA) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 26th of March in order to receive the dividend, which the company will pay on the 24th of April.
GlobalData's upcoming dividend is UK£0.10 a share, following on from the last 12 months, when the company distributed a total of UK£0.15 per share to shareholders. Calculating the last year's worth of payments shows that GlobalData has a trailing yield of 1.6% on the current share price of £9.6. If you buy this business for its dividend, you should have an idea of whether GlobalData's dividend is reliable and sustainable. So we need to investigate whether GlobalData can afford its dividend, and if the dividend could grow.
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, GlobalData paid out 250% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and GlobalData fortunately did generate enough cash to fund its dividend. 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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, GlobalData's earnings per share have been growing at 10% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, four years ago, GlobalData has lifted its dividend by approximately 57% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Should investors buy GlobalData for the upcoming dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with GlobalData's paying out such a high percentage of its profit. In summary, it's hard to get excited about GlobalData from a dividend perspective.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 3 warning signs for GlobalData 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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