Clinigen Group plc (LON:CLIN) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 5th of November will not receive the dividend, which will be paid on the 2nd of December.

Clinigen Group's upcoming dividend is UK£0.055 a share, following on from the last 12 months, when the company distributed a total of UK£0.076 per share to shareholders. Calculating the last year's worth of payments shows that Clinigen Group has a trailing yield of 1.3% on the current share price of £6.02. If you buy this business for its dividend, you should have an idea of whether Clinigen Group's dividend is reliable and sustainable. So we need to investigate whether Clinigen Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Clinigen Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Clinigen Group paid out 74% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Clinigen Group generated enough free cash flow to afford its dividend. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Clinigen Group earnings per share are up 9.6% per annum over the last five years. Decent historical earnings per share growth suggests Clinigen Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, eight years ago, Clinigen Group has lifted its dividend by approximately 26% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Clinigen Group worth buying for its dividend? Earnings per share growth has been modest and Clinigen Group paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Clinigen Group's dividend merits.

While it's tempting to invest in Clinigen Group for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Clinigen Group that we strongly recommend you have a look at before investing in the company.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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