Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that TClarke plc (LON:CTO) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 5th of September will not receive this dividend, which will be paid on the 4th of October.
TClarke's upcoming dividend is UK£0.0075 a share, following on from the last 12 months, when the company distributed a total of UK£0.04 per share to shareholders. Based on the last year's worth of payments, TClarke has a trailing yield of 3.7% on the current stock price of £1.095. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. TClarke paid out a comfortable 26% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see TClarke has grown its earnings rapidly, up 42% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TClarke's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. TClarke is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
From a dividend perspective, should investors buy or avoid TClarke? Earnings per share have grown at a nice rate in recent times and over the last year, TClarke paid out less than half its earnings and a bit over half its free cash flow. TClarke looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about TClarke's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top 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 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. Thank you for reading.