It looks like Warpaint London PLC (LON:W7L) is about to go ex-dividend in the next 3 days. The ex-dividend date is commonly two business days 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 can take two business days or more to settle. Thus, you can purchase Warpaint London's shares before the 5th of November in order to receive the dividend, which the company will pay on the 20th of November.
The company's next dividend payment will be UK£0.0425 per share, on the back of last year when the company paid a total of UK£0.13 to shareholders. Last year's total dividend payments show that Warpaint London has a trailing yield of 6.7% on the current share price of UK£1.98. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Warpaint London paid out 93% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while Warpaint London's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
Check out our latest analysis for Warpaint London
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Warpaint London has grown its earnings rapidly, up 29% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Warpaint London has delivered 27% dividend growth per year on average over the past nine years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Warpaint London an attractive dividend stock, or better left on the shelf? Warpaint London has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, it's hard to get excited about Warpaint London from a dividend perspective.
However if you're still interested in Warpaint London as a potential investment, you should definitely consider some of the risks involved with Warpaint London. Our analysis shows 1 warning sign for Warpaint London and you should be aware of it before buying any shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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