Readers hoping to buy Anglo Pacific Group plc (LON:APF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Anglo Pacific Group's shares before the 8th of July to receive the dividend, which will be paid on the 18th of August.

The company's next dividend payment will be UK£0.037 per share, and in the last 12 months, the company paid a total of UK£0.09 per share. Looking at the last 12 months of distributions, Anglo Pacific Group has a trailing yield of approximately 6.4% on its current stock price of £1.4. 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 investigate whether Anglo Pacific Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Anglo Pacific Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Anglo Pacific Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Anglo Pacific Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Anglo Pacific Group reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Anglo Pacific Group's dividend payments are broadly unchanged compared to where they were 10 years ago.

We update our analysis on Anglo Pacific Group every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has Anglo Pacific Group got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Anglo Pacific Group as an investment, you'll find it beneficial to know what risks this stock is facing. For example – Anglo Pacific Group has 3 warning signs we think you should be aware of.

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. 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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