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Readers hoping to buy BGC Partners, Inc. (NASDAQ:BGCP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 16th of November to receive the dividend, which will be paid on the 1st of December.

BGC Partners’s upcoming dividend is US$0.01 a share, following on from the last 12 months, when the company distributed a total of US$0.04 per share to shareholders. Calculating the last year’s worth of payments shows that BGC Partners has a trailing yield of 1.1% on the current share price of $3.51. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for BGC Partners

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. An unusually high payout ratio of 236% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

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.

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

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Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. BGC Partners’s earnings per share have fallen at approximately 28% 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. BGC Partners has seen its dividend decline 19% per annum on average over the past 10 years, which is not great to see. 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.

To Sum It Up

Is BGC Partners worth buying for its dividend? Earnings per share are in decline and BGC Partners is paying out what we feel is an uncomfortably 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. BGC Partners doesn’t appear to have a lot going for it, and we’re not inclined to take a risk on owning it for the dividend.

With that being said, if you’re still considering BGC Partners as an investment, you’ll find it beneficial to know what risks this stock is facing. Every company has risks, and we’ve spotted 5 warning signs for BGC Partners (of which 2 are potentially serious!) you should know about.

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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