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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mueller Industries, Inc. (NYSE:MLI) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 19th of March to receive the dividend, which will be paid on the 3rd of April.
Mueller Industries's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Calculating the last year's worth of payments shows that Mueller Industries has a trailing yield of 1.7% on the current share price of $23.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Mueller Industries paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 13% of its free cash flow in the last year.
It's positive to see that Mueller Industries'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?
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 fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Mueller Industries's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Mueller Industries has lifted its dividend by approximately 7.2% a year on average.
To Sum It Up
Should investors buy Mueller Industries for the upcoming dividend? While it's not great to see that earnings per share are effectively flat over the ten-year period we checked, at least the payout ratios are low and conservative. Overall, it's hard to get excited about Mueller Industries from a dividend perspective.
While it's tempting to invest in Mueller Industries for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Mueller Industries that we strongly recommend you have a look at before investing in the company.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.