Readers hoping to buy QinetiQ Group plc (LON:QQ.) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase QinetiQ Group's shares before the 4th of January in order to be eligible for the dividend, which will be paid on the 2nd of February.

The company's next dividend payment will be UK£0.026 per share, and in the last 12 months, the company paid a total of UK£0.077 per share. Looking at the last 12 months of distributions, QinetiQ Group has a trailing yield of approximately 2.5% on its current stock price of £3.09. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether QinetiQ Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for QinetiQ 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. Fortunately QinetiQ Group's payout ratio is modest, at just 42% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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. LSE:QQ. Historic Dividend January 1st 2024

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see QinetiQ Group's earnings per share have dropped 5.2% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, QinetiQ Group has increased its dividend at approximately 7.3% a year on average.

To Sum It Up

Should investors buy QinetiQ Group for the upcoming dividend? Earnings per share have fallen significantly, although at least QinetiQ Group paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of QinetiQ Group's dividend merits.

With that being said, if dividends aren't your biggest concern with QinetiQ Group, you should know about the other risks facing this business. For example, we've found 1 warning sign for QinetiQ Group that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.