Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Games Workshop Group PLC (LON:GAW) is set to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. As a result, Games Workshop Group investors who buy the stock on or after August 4 will not receive the dividend, which will be paid on September 12.
The company’s next dividend payment will be £0.90 per share, and over the past 12 months the company has paid a total of £1.65 per share. Based on last year’s payouts, Games Workshop Group has a 2.1% yield on the current share price of £77.45. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! We need to see if the dividend is covered by earnings and if it increases.
Check out our latest analysis for Games Workshop Group
Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. That’s why it’s good to see Games Workshop Group donating a modest 42% of its revenue. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. It paid out 105% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.
While Games Workshop Group’s dividends were covered by the company’s reported earnings, cash is a bit more important, so it’s not nice to see that the company didn’t generate enough cash to pay its dividend. . Cash is king, as they say, and if Games Workshop Group were to repeatedly pay dividends that are not well covered by cash flow, we would consider that a warning sign.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. That’s why it’s heartening to see Games Workshop Group’s revenue skyrocketing, growing 33% annually over the past five years. Earnings have grown rapidly, but we are concerned that dividend payments have consumed most of the company’s cash flow over the past year.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Games Workshop Group has achieved an average annual dividend increase of 10%, based on dividend payouts over the past 10 years. Earnings per share and dividends have both increased rapidly lately, which is great to see.
Should investors buy Games Workshop Group for the upcoming dividend? We are happy to see that the company improved its earnings per share while paying out a low percentage of income. However, it’s not great to see him pay what we consider an uncomfortably high percentage of his cash flow. All in all, not a bad combination, but we believe there are probably more attractive dividend prospects.
On that note, you’ll want to research the risks that Games Workshop Group faces. For example, we have identified 2 warning signs for Games Workshop Group (1 is potentially serious) of which you should be aware.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.