Yahoo Finance Why It Might Not Make Sense To Buy Tatton Asset Management plc (LON:TAM) For Its Upcoming Dividend
Tatton Asset Management plc (LON:TAM) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Tatton Asset Management's shares on or after the 25th of November, you won't be eligible to receive the dividend, when it is paid on the 17th of December.
The company's next dividend payment will be UK£0.04 per share, and in the last 12 months, the company paid a total of UK£0.11 per share. Last year's total dividend payments show that Tatton Asset Management has a trailing yield of 1.8% on the current share price of £6. If you buy this business for its dividend, you should have an idea of whether Tatton Asset Management's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Tatton Asset Management
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Tatton Asset Management's earnings per share have plummeted approximately 54% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Tatton Asset Management has lifted its dividend by approximately 26% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Tatton Asset Management is already paying out 89% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
To Sum It Up
Is Tatton Asset Management worth buying for its dividend? We're not overly enthused to see Tatton Asset Management's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you're still interested in Tatton Asset Management despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Tatton Asset Management and you should be aware of them before buying any shares.
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.
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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