Mader Group Limited's (ASX:MAD) periodic dividend will be increasing on the 27th of September to A$0.02, with investors receiving 33% more than last year's A$0.015. This takes the annual payment to 1.5% of the current stock price, which unfortunately is below what the industry is paying.
Mader Group's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Mader Group was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 68.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
Mader Group Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of A$0.03 in 2019 to the most recent total annual payment of A$0.04. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Mader Group has impressed us by growing EPS at 17% per year over the past three years. Mader Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On Mader Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Mader Group will make a great income stock. While Mader Group is earning enough to cover the payments, the cash flows are lacking. We don't think Mader Group is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Mader Group that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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