Readers hoping to buy Motorpoint Group plc (LON:MOTR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 6th of February will not receive this dividend, which will be paid on the 13th of March.
Motorpoint Group's next dividend payment will be UK£0.026 per share. Last year, in total, the company distributed UK£0.075 to shareholders. Looking at the last 12 months of distributions, Motorpoint Group has a trailing yield of approximately 2.4% on its current stock price of £3.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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 Motorpoint Group's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether Motorpoint Group generated enough free cash flow to afford its dividend. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Motorpoint Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Motorpoint Group's earnings per share have plummeted approximately 64% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, Motorpoint Group has lifted its dividend by approximately 41% a year on average.
To Sum It Up
Is Motorpoint Group worth buying for its dividend? Motorpoint Group has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Motorpoint Group's dividend merits.
Curious what other investors think of Motorpoint Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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