Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that M.D.C. Holdings, Inc. (NYSE:MDC) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 6th of August to receive the dividend, which will be paid on the 21st of August.
M.D.C. Holdings's next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Looking at the last 12 months of distributions, M.D.C. Holdings has a trailing yield of approximately 3.3% on its current stock price of $36.14. If you buy this business for its dividend, you should have an idea of whether M.D.C. Holdings's dividend is reliable and sustainable. So we need to investigate whether M.D.C. Holdings can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately M.D.C. Holdings's payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by M.D.C. Holdings's 7.8% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. M.D.C. Holdings has delivered an average of 3.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
From a dividend perspective, should investors buy or avoid M.D.C. Holdings? Earnings per share have fallen significantly, although at least M.D.C. Holdings paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. In summary, while it has some positive characteristics, we're not inclined to race out and buy M.D.C. Holdings today.
Curious what other investors think of M.D.C. Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
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