Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see MACA Limited (ASX:MLD) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 6th of March will not receive the dividend, which will be paid on the 19th of March.
MACA's next dividend payment will be AU$0.025 per share, and in the last 12 months, the company paid a total of AU$0.05 per share. Last year's total dividend payments show that MACA has a trailing yield of 5.6% on the current share price of A$0.9. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether MACA has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. MACA paid out 55% of its earnings to investors last year, a normal payout level for most businesses. 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. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that MACA'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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. MACA's earnings per share have fallen at approximately 21% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. MACA has seen its dividend decline 2.0% per annum on average over the past nine years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Has MACA got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, MACA looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for MACA? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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.
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