Readers hoping to buy Aptitude Software Group plc (LON:APTD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Aptitude Software Group's shares before the 12th of May to receive the dividend, which will be paid on the 3rd of June.

The company's next dividend payment will be UK£0.036 per share, on the back of last year when the company paid a total of UK£0.054 to shareholders. Looking at the last 12 months of distributions, Aptitude Software Group has a trailing yield of approximately 1.6% on its current stock price of £3.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Aptitude Software Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Aptitude Software Group is paying out an acceptable 60% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Aptitude Software Group generated enough free cash flow to afford its dividend. It distributed 29% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Aptitude Software Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.



Click here to see the company's payout ratio, plus analyst estimates of its future dividends. historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Aptitude Software Group's earnings per share have fallen at approximately 6.0% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Aptitude Software Group has lifted its dividend by approximately 1.1% a year on average.

To Sum It Up

Is Aptitude Software Group worth buying for its dividend? 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. To summarise, Aptitude Software Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Aptitude Software Group, you'll find it worthwhile knowing the risks that this stock faces. For example - Aptitude Software Group has 3 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 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.