M Winkworth PLC (LON:WINK) stock is about to trade ex-dividend in three 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 M Winkworth's shares on or after the 22nd of July, you won't be eligible to receive the dividend, when it is paid on the 18th of August.

The company's next dividend payment will be UK£0.048 per share. Last year, in total, the company distributed UK£0.067 to shareholders. Looking at the last 12 months of distributions, M Winkworth has a trailing yield of approximately 3.5% on its current stock price of £1.91. If you buy this business for its dividend, you should have an idea of whether M Winkworth's dividend is reliable and sustainable. So we need to investigate whether M Winkworth can afford its dividend, and if the dividend could grow.

See our latest analysis for M Winkworth

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. M Winkworth is paying out an acceptable 73% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether M Winkworth generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.

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.

Click here to see how much of its profit M Winkworth 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. With that in mind, we're discomforted by M Winkworth's 5.1% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, M Winkworth has increased its dividend at approximately 4.5% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Has M Winkworth got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, while it has some positive characteristics, we're not inclined to race out and buy M Winkworth today.

With that being said, if dividends aren't your biggest concern with M Winkworth, you should know about the other risks facing this business. For example, M Winkworth has 3 warning signs (and 1 which is concerning) we think you should know about.

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. 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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