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MIND C.T.I. Ltd (NASDAQ:MNDO) stock is about to trade ex-dividend in two days. Investors can purchase shares before the 17th of March in order to be eligible for this dividend, which will be paid on the 8th of April.
MIND C.T.I's upcoming dividend is US$0.26 a share, following on from the last 12 months, when the company distributed a total of US$0.26 per share to shareholders. Looking at the last 12 months of distributions, MIND C.T.I has a trailing yield of approximately 8.3% on its current stock price of $3.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether MIND C.T.I can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year MIND C.T.I paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while MIND C.T.I's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about MIND C.T.I's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, MIND C.T.I has lifted its dividend by approximately 2.7% a year on average.
To Sum It Up
Is MIND C.T.I worth buying for its dividend? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. It's not that we think MIND C.T.I is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that in mind though, if the poor dividend characteristics of MIND C.T.I don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for MIND C.T.I and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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