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Don't Race Out To Buy LifeWorks Inc. (TSE:LWRK) Just Because It's Going Ex-Dividend

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LifeWorks Inc. (TSE:LWRK) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase LifeWorks' shares before the 28th of September in order to be eligible for the dividend, which will be paid on the 15th of October.

The company's next dividend payment will be CA$0.065 per share. Last year, in total, the company distributed CA$0.78 to shareholders. Looking at the last 12 months of distributions, LifeWorks has a trailing yield of approximately 2.2% on its current stock price of CA$34.92. 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 LifeWorks has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for LifeWorks

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. LifeWorks's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.

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

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Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. LifeWorks 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. LifeWorks has seen its dividend decline 1.9% per annum on average over the past 10 years, which is not great to see.

We update our analysis on LifeWorks every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is LifeWorks an attractive dividend stock, or better left on the shelf? It's hard to get used to LifeWorks paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in LifeWorks and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for LifeWorks that we strongly recommend you have a look at before investing in the company.

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. 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.

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