It Might Be Better To Avoid Cenkos Securities plc's (LON:CNKS) Upcoming 4.0% Dividend
Cenkos Securities plc (LON:CNKS) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 3rd of October in order to receive the dividend, which the company will pay on the 5th of November.
Cenkos Securities's next dividend payment will be UK£0.02 per share, and in the last 12 months, the company paid a total of UK£0.04 per share. Based on the last year's worth of payments, Cenkos Securities has a trailing yield of 9.0% on the current stock price of £0.5. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Cenkos Securities
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cenkos Securities paid out 148% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see how much of its profit Cenkos Securities paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Cenkos Securities's earnings per share have dropped 26% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cenkos Securities's dividend payments per share have declined at 7.7% per year on average over the past ten years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Should investors buy Cenkos Securities for the upcoming dividend? Earnings per share are in decline and Cenkos Securities is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Cenkos Securities doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Want to learn more about Cenkos Securities's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.
