Strix Group Plc (LON:KETL) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 26th of September in order to receive the dividend, which the company will pay on the 25th of October.
Strix Group's next dividend payment will be UK£0.03 per share. Last year, in total, the company distributed UK£0.09 to shareholders. Based on the last year's worth of payments, Strix Group stock has a trailing yield of around 5.4% on the current share price of £1.754. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. Strix Group is paying out an acceptable 64% of its profit, a common payout level among most companies. 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. Over the last year it paid out 67% of its free cash flow as dividends, within the usual 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?
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. That's why it's vaguely disappointing to see earnings per share declined -4.4% on last year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last two years, Strix Group has lifted its dividend by approximately 16% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
The Bottom Line
From a dividend perspective, should investors buy or avoid Strix Group? While earnings per share are shrinking, it's encouraging to see that at least Strix Group's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Strix Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Wondering what the future holds for Strix Group? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.