Yahoo Finance Here's Why We're Wary Of Buying 360 Capital Group's (ASX:TGP) For Its Upcoming Dividend
360 Capital Group Limited (ASX:TGP) stock is about to trade ex-dividend in four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, 360 Capital Group investors that purchase the stock on or after the 30th of December will not receive the dividend, which will be paid on the 27th of January.
The company's next dividend payment will be AU$0.015 per share, on the back of last year when the company paid a total of AU$0.04 to shareholders. Looking at the last 12 months of distributions, 360 Capital Group has a trailing yield of approximately 7.2% on its current stock price of A$0.83. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for 360 Capital Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 360 Capital Group paid out 165% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see how much of its profit 360 Capital Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. 360 Capital Group's earnings per share have fallen at approximately 26% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. 360 Capital Group has delivered 2.0% dividend growth per year on average over the past nine years. 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. 360 Capital Group is already paying out 165% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is 360 Capital Group worth buying for its dividend? Earnings per share are in decline and 360 Capital Group is paying out what we feel is an uncomfortably 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. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that being said, if you're still considering 360 Capital Group as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 3 warning signs with 360 Capital Group (at least 1 which is concerning), and understanding these should be part of your investment process.
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.
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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.
