Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see WisdomTree Investments, Inc. (NASDAQ: WETF) is set to trade ex-dividend within the next 4 days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. In other words, investors can buy shares of WisdomTree Investments before November 9 in order to be eligible for the dividend, which will be paid on November 24.

The company’s next dividend payment will be US $ 0.03 per share, compared to last year when the company paid a total of US $ 0.12 to shareholders. Calculating the value of last year’s payouts shows that WisdomTree Investments has a 1.8% return on the current stock price of $ 6.71. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. So we need to determine whether WisdomTree Investments can afford its dividend and whether the dividend could increase.

Check out our latest analysis for WisdomTree Investments

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. It paid out 76% of its profits as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a downturn in activity. We would be concerned about the risk of falling earnings.

When a company has paid less dividends than it made a profit, it usually suggests that its dividend is affordable. The lower the% of its profit that it pays out, the greater the margin of safety for the dividend if the company goes into recession.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and to safely own. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. WisdomTree Investments’ earnings per share have fallen about 23% per year over the past five years. Ultimately, when earnings per share declines, the size of the pie from which dividends can be paid declines.

Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. WisdomTree Investments dividend payouts per share have declined by 13% per year on average over the past seven years, which is not inspiring. It’s never nice to watch profits and dividends plummet, but at least management has reduced the dividend rather than potentially risking the health of the company in an attempt to maintain it.

Last takeaways

Should investors buy WisdomTree Investments for the next dividend? We’re not too excited to see WisdomTree Investments’ earnings decline as the company pays more than half of its earnings as dividends to shareholders. It’s not an overtly attractive combination of features, and we just aren’t interested in the dividend of this company.

That being said, if you are still considering WisdomTree Investments as an investment, you will find it useful to know what risks this security faces. We have identified 4 warning signs with WisdomTree Investments (at least 1 which is a bit worrying), and understanding them should be part of your investment process.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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