It looks like Martinrea International Inc. (TSE:MRE) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 30th of December, you won't be eligible to receive this dividend, when it is paid on the 15th of January.
Martinrea International's upcoming dividend is CA$0.05 a share, following on from the last 12 months, when the company distributed a total of CA$0.20 per share to shareholders. Calculating the last year's worth of payments shows that Martinrea International has a trailing yield of 1.3% on the current share price of CA$15.15. 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 Martinrea International can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Martinrea International's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Martinrea International reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
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, eight years ago, Martinrea International has lifted its dividend by approximately 6.6% a year on average.
Is Martinrea International an attractive dividend stock, or better left on the shelf? It's hard to get used to Martinrea International paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you want to look further into Martinrea International, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 2 warning signs for Martinrea International (of which 1 is potentially serious!) you should know about.
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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