Yahoo Finance It Might Not Be A Great Idea To Buy Morgan Advanced Materials plc (LON:MGAM) For Its Next Dividend
Morgan Advanced Materials plc (LON:MGAM) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Morgan Advanced Materials' shares on or after the 25th of April, you won't be eligible to receive the dividend, when it is paid on the 17th of May.
The company's next dividend payment will be UK£0.067 per share, and in the last 12 months, the company paid a total of UK£0.12 per share. Based on the last year's worth of payments, Morgan Advanced Materials stock has a trailing yield of around 4.2% on the current share price of UK£2.875. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Morgan Advanced Materials
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Morgan Advanced Materials is paying out an acceptable 73% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Morgan Advanced Materials paid out more free cash flow than it generated - 189%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Morgan Advanced Materials's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Morgan Advanced Materials's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Morgan Advanced Materials's earnings per share have been shrinking at 3.9% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Morgan Advanced Materials has delivered 1.6% dividend growth per year on average over the past 10 years.
To Sum It Up
Has Morgan Advanced Materials got what it takes to maintain its dividend payments? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in Morgan Advanced Materials and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for Morgan Advanced Materials 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.
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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.
