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Here's What We Like About Mullen Group's (TSE:MTL) Upcoming Dividend

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It looks like Mullen Group Ltd. (TSE:MTL) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Mullen Group's shares on or after the 28th of July, you won't be eligible to receive the dividend, when it is paid on the 15th of August.

The company's next dividend payment will be CA$0.06 per share, on the back of last year when the company paid a total of CA$0.72 to shareholders. Calculating the last year's worth of payments shows that Mullen Group has a trailing yield of 4.9% on the current share price of CA$13.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Mullen Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Mullen Group

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. Mullen Group paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Mullen 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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. Fortunately for readers, Mullen Group's earnings per share have been growing at 15% a year for the past five years. Mullen Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mullen Group has seen its dividend decline 3.8% per annum on average over the past 10 years, which is not great to see. Mullen Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Mullen Group got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Mullen Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 55% and 54% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Mullen Group's dividend merits.

In light of that, while Mullen Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Mullen Group that we recommend you consider before investing in the business.

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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