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It Might Not Be A Great Idea To Buy Spark Infrastructure Group (ASX:SKI) For Its Next Dividend

Simply Wall St
·3 min read

Readers hoping to buy Spark Infrastructure Group (ASX:SKI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 30th of December will not receive the dividend, which will be paid on the 15th of March.

Spark Infrastructure Group's upcoming dividend is AU$0.065 a share, following on from the last 12 months, when the company distributed a total of AU$0.14 per share to shareholders. Looking at the last 12 months of distributions, Spark Infrastructure Group has a trailing yield of approximately 5.9% on its current stock price of A$2.19. 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 Spark Infrastructure Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Spark Infrastructure Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. An unusually high payout ratio of 325% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Spark Infrastructure Group's earnings per share have dropped 13% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Spark Infrastructure Group dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Final Takeaway

Has Spark Infrastructure Group got what it takes to maintain its dividend payments? Earnings per share are in decline and Spark Infrastructure Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Spark Infrastructure Group 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.

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 Spark Infrastructure Group. We've identified 4 warning signs with Spark Infrastructure Group (at least 3 which are a bit unpleasant), and understanding these should be part of your investment process.

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.

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