Readers hoping to buy Camellia Plc (LON:CAM) 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Camellia's shares on or after the 9th of September will not receive the dividend, which will be paid on the 8th of October.

The company's upcoming dividend is UK£0.44 a share, following on from the last 12 months, when the company distributed a total of UK£1.44 per share to shareholders. Based on the last year's worth of payments, Camellia stock has a trailing yield of around 1.4% on the current share price of £64. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Camellia

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Camellia paid out 346% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser.

Click here to see how much of its profit Camellia paid out over the last 12 months. historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Camellia's earnings per share have fallen at approximately 21% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.



The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Camellia's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Camellia? Not only are earnings per share shrinking, but Camellia is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that being said, if you're still considering Camellia as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 3 warning signs we've spotted with Camellia (including 1 which is a bit concerning).

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. 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.

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