U.S. Markets closed

There's A Lot To Like About Cake Box Holdings Plc's (LON:CBOX) Upcoming UK£0.016 Dividend

Simply Wall St

Cake Box Holdings Plc (LON:CBOX) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 5th of December will not receive the dividend, which will be paid on the 20th of December.

Cake Box Holdings's next dividend payment will be UK£0.016 per share. Last year, in total, the company distributed UK£0.036 to shareholders. Looking at the last 12 months of distributions, Cake Box Holdings has a trailing yield of approximately 2.2% on its current stock price of £1.66. 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.

Check out our latest analysis for Cake Box Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Cake Box Holdings paid out a comfortable 48% of its profit last year. 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. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cake Box Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Cake Box Holdings's ability to maintain its dividend.

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

AIM:CBOX Historical Dividend Yield, December 1st 2019

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. For that reason, it's encouraging to see Cake Box Holdings's earnings over the past year have risen 27%. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

Given that Cake Box Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Should investors buy Cake Box Holdings for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Curious what other investors think of Cake Box Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.