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Is It Smart To Buy Morgan Advanced Materials plc (LON:MGAM) Before It Goes Ex-Dividend?

Readers hoping to buy Morgan Advanced Materials plc (LON:MGAM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Thus, you can purchase Morgan Advanced Materials' shares before the 27th of October in order to receive the dividend, which the company will pay on the 18th of November.

The company's next dividend payment will be UK£0.053 per share, and in the last 12 months, the company paid a total of UK£0.11 per share. Based on the last year's worth of payments, Morgan Advanced Materials stock has a trailing yield of around 4.5% on the current share price of £2.485. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Morgan Advanced Materials

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Morgan Advanced Materials's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether Morgan Advanced Materials generated enough free cash flow to afford its dividend. Dividends consumed 67% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

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historic-dividend

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. This is why it's a relief to see Morgan Advanced Materials earnings per share are up 7.1% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Morgan Advanced Materials has delivered 1.9% 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? Earnings per share have been growing at a steady rate, and Morgan Advanced Materials paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's hard to get excited about Morgan Advanced Materials from a dividend perspective.

So while Morgan Advanced Materials looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Morgan Advanced Materials you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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