K3 Capital Group PLC (LON:K3C) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 3rd of October will not receive the dividend, which will be paid on the 22nd of October.
K3 Capital Group's next dividend payment will be UK£0.04 per share, on the back of last year when the company paid a total of UK£0.08 to shareholders. Calculating the last year's worth of payments shows that K3 Capital Group has a trailing yield of 4.9% on the current share price of £1.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether K3 Capital Group has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for K3 Capital Group
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. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. 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. Over the past year it paid out 154% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While K3 Capital Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were K3 Capital Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see how much of its profit K3 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. K3 Capital Group's earnings per share have fallen at approximately 13% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.