Be sure to check out Bytes Technology Group plc (LON:BYIT) before it ex-dividend

It looks like Bytes Technology Group plc (LON:BYIT) will go ex-dividend in the next three days. The ex-dividend date is one day before the record date, the date by which shareholders must be on the company’s books to receive a dividend. The ex-dividend date is an important date to keep in mind, as any purchase of shares made on or after this date could mean a delayed settlement that doesn’t show up on the record date. In other words, investors can buy Bytes Technology Group shares before November 17th to be eligible for the dividend, which will be paid on December 2nd.

The company’s next dividend payment will be £0.024 per share after the company paid a total of £0.066 to shareholders last year. Based on last year’s payments, Bytes Technology Group has a trailing yield of 1.5% on the current share price of £4,332. Dividends are an important source of income for many shareholders, but the health of the company is critical to maintaining those dividends. So we need to examine whether Bytes Technology Group can afford its dividend and whether the dividend could grow.

Our analysis indicates this BYIT is potentially undervalued!

Dividends are usually paid out of company profits. If a company pays more dividends than it makes in profits, the dividend might not be sustainable. That’s why it’s good to see that Bytes Technology Group is paying out a modest 44% of its earnings. A useful secondary check can be to assess whether Bytes Technology Group has generated enough free cash flow to support its dividend. Bytes Technology Group paid out more free cash flow than it generated last year — 130%, to be exact — which we think is worryingly high. We’re curious as to why the company paid out more cash than it generated over the past year, as it can be one of the first signs that a dividend may not be sustainable.

While Bytes Technology Group’s dividends have been covered by the company’s reported earnings, cash is a little more important, so it’s not good to see that the company hasn’t generated enough cash to pay its dividend. Cash is king, as the saying goes, and if Bytes Technology Group repeatedly paid dividends that weren’t well covered by cash flow, we’d take that as a red flag.

Click here to view the company’s payout ratio and analyst estimates of its future dividends.

historical dividend
LSE:BYIT Historical Dividend November 13, 2022

Have profits and dividends grown?

Companies with consistently growing earnings per share generally make the best dividend stocks because they typically find it easier to grow dividends per share. With earnings falling and the company forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why we’re bullish on Bytes Technology Group’s earnings, which are up 58% over the past year. While we’d be remiss not to point out that a year is a very short time for dividend investing, it’s an encouraging sign so far. Earnings have grown quickly, but we’re concerned that dividend payments over the past year have eaten up most of the company’s cash flow.

A year is a very short time frame in the investing pantheon, so we wouldn’t get too hung up on those numbers.

Given that Bytes Technology Group has only been paying a dividend for a year, there’s not much about its past to learn from.

Last snack

Is Bytes Technology Group Worth Buying For Its Dividend? We are pleased that Bytes Technology Group has successfully grown its earnings per share at a good rate and has reinvested most of its profits into the company. However, we note with some concern the high cash flow payout ratio. All in all, we’re not particularly excited about Bytes Technology Group from a dividend perspective.

Curious what other investors think of Bytes Technology Group? See what analysts are forecasting with this visualization of its historical and future estimated earnings and cash flows.

In general, we wouldn’t recommend simply buying the first dividend stock you see. Here is a curated list of interesting stocks that are strong dividend payers.

The assessment is complex, but we help to simplify it.

find out if Bytes Technology Group may be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.

Check out the free analysis

This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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