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Why It Might Not Make Sense To Buy WisdomTree Investments, Inc. (NASDAQ:WETF) For Its Upcoming Dividend

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WisdomTree Investments, Inc. (NASDAQ:WETF) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase WisdomTree Investments' shares before the 10th of May in order to receive the dividend, which the company will pay on the 25th of May.

The company's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Based on the last year's worth of payments, WisdomTree Investments stock has a trailing yield of around 2.0% on the current share price of $5.87. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether WisdomTree Investments has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for WisdomTree Investments

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, WisdomTree Investments paid out 91% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by WisdomTree Investments's 7.0% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. WisdomTree Investments has seen its dividend decline 12% per annum on average over the past eight years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid WisdomTree Investments? Not only are earnings per share shrinking, but WisdomTree Investments is paying out a disconcertingly 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. WisdomTree Investments 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.

With that being said, if you're still considering WisdomTree Investments as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for WisdomTree Investments you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.