Don't Race Out To Buy Matthews International Corporation (NASDAQ:MATW) Just Because It's Going Ex-Dividend
Matthews International Corporation (NASDAQ:MATW) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Matthews International's shares on or after the 4th of August, you won't be eligible to receive the dividend, when it is paid on the 21st of August.
The company's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.92 to shareholders. Based on the last year's worth of payments, Matthews International has a trailing yield of 2.0% on the current stock price of $46.22. If you buy this business for its dividend, you should have an idea of whether Matthews International's dividend is reliable and sustainable. So we need to investigate whether Matthews International can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Matthews International
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. Matthews International lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Matthews International didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Matthews International reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Matthews International has lifted its dividend by approximately 8.7% a year on average.
We update our analysis on Matthews International every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Matthews International? It's hard to get used to Matthews International paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Matthews International. We've identified 2 warning signs with Matthews International (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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