Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mader Group Limited (ASX:MAD) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 2nd of September will not receive this dividend, which will be paid on the 17th of September.
Mader Group's next dividend payment will be AU$0.015 per share. Last year, in total, the company distributed AU$0.03 to shareholders. Based on the last year's worth of payments, Mader Group stock has a trailing yield of around 3.4% on the current share price of A$0.875. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Mader Group has been able to grow its dividends, or if the dividend might be cut.
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. Mader Group paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Mader Group generated enough free cash flow to afford its dividend. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Mader 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.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Mader Group'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.
Given that Mader Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Is Mader Group worth buying for its dividend? Earnings per share are down very slightly in recent times, and Mader Group paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. In summary, it's hard to get excited about Mader Group from a dividend perspective.
If you want to look further into Mader Group, it's worth knowing the risks this business faces. For example, we've found 2 warning signs for Mader Group that we recommend you consider before investing in the business.
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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