M.D.C. Holdings, Inc. (NYSE:MDC) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 9th of November in order to be eligible for this dividend, which will be paid on the 24th of November.
M.D.C. Holdings's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.60 to shareholders. Last year's total dividend payments show that M.D.C. Holdings has a trailing yield of 3.5% on the current share price of $45.44. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether M.D.C. Holdings has been able to grow its dividends, or if the dividend might be cut.
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. M.D.C. Holdings paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether M.D.C. Holdings generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (86%) 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see M.D.C. Holdings has grown its earnings rapidly, up 36% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. M.D.C. Holdings has delivered 7.0% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy M.D.C. Holdings for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, M.D.C. Holdings paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in M.D.C. Holdings for the dividends alone, you should always be mindful of the risks involved. Be aware that M.D.C. Holdings is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
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.
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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