FW Thorpe Plc (LON:TFW) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 31st of October in order to receive the dividend, which the company will pay on the 29th of November.
FW Thorpe's next dividend payment will be UK£0.04 per share, and in the last 12 months, the company paid a total of UK£0.06 per share. Last year's total dividend payments show that FW Thorpe has a trailing yield of 2.0% on the current share price of £2.83. If you buy this business for its dividend, you should have an idea of whether FW Thorpe's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see FW Thorpe paying out a modest 40% of its earnings. 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. It paid out more than half (51%) of its free cash flow in the past year, which is within an average 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see FW Thorpe earnings per share are up 9.5% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, FW Thorpe has lifted its dividend by approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has FW Thorpe got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that FW Thorpe is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. To summarise, FW Thorpe looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Keen to explore more data on FW Thorpe's financial performance? Check out our visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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