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Don't Race Out To Buy Mortgage Choice Limited (ASX:MOC) Just Because It's Going Ex-Dividend

Simply Wall St

It looks like Mortgage Choice Limited (ASX:MOC) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 2nd of September to receive the dividend, which will be paid on the 15th of October.

Mortgage Choice's next dividend payment will be AU$0.03 per share, and in the last 12 months, the company paid a total of AU$0.06 per share. Looking at the last 12 months of distributions, Mortgage Choice has a trailing yield of approximately 5.3% on its current stock price of A$1.135. If you buy this business for its dividend, you should have an idea of whether Mortgage Choice'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.

See our latest analysis for Mortgage Choice

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. Mortgage Choice paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Mortgage Choice paid out over the last 12 months.

ASX:MOC Historical Dividend Yield, August 28th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Mortgage Choice's 6.0% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mortgage Choice has seen its dividend decline 7.3% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Should investors buy Mortgage Choice for the upcoming dividend? We're not overly enthused to see Mortgage Choice's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Keen to explore more data on Mortgage Choice's financial performance? Check out our visualisation of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.