Marine Products Corporation (NYSE:MPX) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 8th of August, you won't be eligible to receive this dividend, when it is paid on the 10th of September.
Marine Products's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.58 to shareholders. Last year's total dividend payments show that Marine Products has a trailing yield of 3.8% on the current share price of $15.43. If you buy this business for its dividend, you should have an idea of whether Marine Products's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Marine Products paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Marine Products generated enough free cash flow to afford its dividend. Over the past year it paid out 134% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Marine Products paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Marine Products's ability to maintain its 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Marine Products's earnings have been skyrocketing, up 33% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Marine Products has increased its dividend at approximately 8.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
From a dividend perspective, should investors buy or avoid Marine Products? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. That's why we're glad to see Marine Products growing its EPS, buying back stock and paying out a reasonable percentage of its earnings as dividends. However, we note with some concern that it paid out 134% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Curious about whether Marine Products has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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