Yahoo Finance Don't Buy DSW Capital plc (LON:DSW) For Its Next Dividend Without Doing These Checks
DSW Capital plc (LON:DSW) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. This means that investors who purchase DSW Capital's shares on or after the 14th of December will not receive the dividend, which will be paid on the 12th of January.
The company's upcoming dividend is UK£0.013 a share, following on from the last 12 months, when the company distributed a total of UK£0.033 per share to shareholders. Looking at the last 12 months of distributions, DSW Capital has a trailing yield of approximately 6.4% on its current stock price of £0.51. If you buy this business for its dividend, you should have an idea of whether DSW Capital's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for DSW Capital
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. DSW Capital 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If DSW Capital didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.
Click here to see how much of its profit DSW Capital paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. DSW Capital 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.
DSW Capital also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Unfortunately DSW Capital has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Remember, you can always get a snapshot of DSW Capital's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Has DSW Capital got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering DSW Capital as an investment, you'll find it beneficial to know what risks this stock is facing. For example, DSW Capital has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.
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.
