Don’t rush to buy Cohort plc (LON: CHRT) just because it’s going ex-dividend

Plc cohort (LON: CHRT) the stock is about to trade off-dividend in three days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Thus, you can buy Cohort shares before January 6 in order to receive the dividend that the company will pay on February 14.

The company’s next dividend payment will be £ 0.038 per share, and over the past 12 months the company has paid a total of £ 0.11 per share. Based on the value of last year’s payouts, the Cohort share has a rolling yield of around 2.1% on the current share price of £ 5.35. We love to see companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our goose that lays the golden eggs! So we need to determine if Cohort can afford its dividend and if the dividend could increase.

See our latest analysis for the cohort

Dividends are usually paid out of the company’s profits, so if a company pays more than it earns, its dividend is usually at risk of being reduced. Last year, Cohort paid out 101% of its profits as dividends to shareholders, suggesting that the dividend is not well covered by earnings. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Fortunately, he only paid 22% of his free cash flow last year.

It’s disappointing that the dividend was not covered by earnings, but cash is more important from a dividend sustainability perspective, and Cohort fortunately generated enough cash to fund its dividend. If executives were to continue paying more dividends than the company declared profits, we would take this as a warning sign. Very few companies are able to sustainably pay dividends greater than their declared profits.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

AIM: CHRT Historical Dividend January 2, 2022

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and safely own. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Readers will then understand why we are concerned that Cohort’s earnings per share have fallen 9.9% per year over the past five years. Such a sudden drop casts doubt on the future sustainability of the dividend.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Cohort has generated dividend growth of 17% per year on average over the past 10 years. The only way to pay higher dividends when profits go down is to pay a higher percentage of profits, spend money on the balance sheet, or borrow money. Cohort already pays out a high percentage of its earnings, so without earnings growth, we doubt that dividend will grow much in the future.

The bottom line

Is Cohort an attractive dividend-paying stock, or better still, is it left on the shelf? It’s never great to see earnings per share go down, especially when a company pays out 101% of its profits as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower – good news from a dividend perspective – which makes us wonder why there is such a mismatch between income and cash flow. Conclusion: The cohort has some unfortunate characteristics that we believe could lead to sub-optimal outcomes for dividend investors.

That said, if you look at this stock without worrying too much about the dividend, you should still be familiar with the risks associated with Cohort. Concrete example: we have spotted 2 warning signs for the cohort you must be aware.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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