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It Might Not Be A Great Idea To Buy Clarkson PLC (LON:CKN) For Its Next Dividend

Simply Wall St

Clarkson PLC (LON:CKN) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 3rd of September to receive the dividend, which will be paid on the 21st of September.

Clarkson's next dividend payment will be UK£0.53 per share. Last year, in total, the company distributed UK£0.78 to shareholders. Looking at the last 12 months of distributions, Clarkson has a trailing yield of approximately 3.2% on its current stock price of £24.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Clarkson has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Clarkson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Clarkson paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Clarkson reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Clarkson has delivered an average of 6.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

We update our analysis on Clarkson every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Clarkson for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Clarkson. Our analysis shows 1 warning sign for Clarkson and you should be aware of this before buying any shares.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.