WisdomTree Investments, Inc. (NASDAQ:WETF) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Therefore, if you purchase WisdomTree Investments’ shares on or after the 9th of August, you won’t be eligible to receive the dividend, when it is paid on the 24th of August.
The company’s next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.12 per share. Based on the last year’s worth of payments, WisdomTree Investments stock has a trailing yield of around 2.2% on the current share price of $5.43. If you buy this business for its dividend, you should have an idea of whether WisdomTree Investments’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. WisdomTree Investments paid out 185% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re discomforted by WisdomTree Investments’s 19% per annum decline in earnings in the past 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. WisdomTree Investments has seen its dividend decline 12% per annum on average over the past eight years, which is not great to see. It’s never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company’s health in an attempt to maintain it.
The Bottom Line
Is WisdomTree Investments worth buying for its dividend? Earnings per share are in decline and WisdomTree Investments is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It’s not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. 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.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with WisdomTree Investments. For example, we’ve found 3 warning signs for WisdomTree Investments that we recommend you consider before investing in the business.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here