Here's What We Like About Mount Gibson Iron's (ASX:MGX) Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Mount Gibson Iron Limited (ASX:MGX) is about to go ex-dividend in just four days. If you purchase the stock on or after the 1st of September, you won't be eligible to receive this dividend, when it is paid on the 24th of September.
Mount Gibson Iron's next dividend payment will be AU$0.03 per share, and in the last 12 months, the company paid a total of AU$0.03 per share. Calculating the last year's worth of payments shows that Mount Gibson Iron has a trailing yield of 3.8% on the current share price of A$0.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Mount Gibson Iron has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Mount Gibson Iron
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 Mount Gibson Iron's payout ratio is modest, at just 41% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
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 how much of its profit Mount Gibson Iron paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Mount Gibson Iron's earnings have been skyrocketing, up 65% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mount Gibson Iron has seen its dividend decline 3.1% per annum on average over the past nine years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
Should investors buy Mount Gibson Iron for the upcoming dividend? It's great that Mount Gibson Iron is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Mount Gibson Iron, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Mount Gibson Iron is facing. To help with this, we've discovered 3 warning signs for Mount Gibson Iron that you should be aware of before investing in their shares.
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.
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. 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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