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Could Mannatech, Incorporated (NASDAQ:MTEX) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
With Mannatech yielding 3.1% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. The company also bought back stock equivalent to around 0.6% of market capitalisation this year. Some simple research can reduce the risk of buying Mannatech for its dividend - read on to learn more.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although it reported a loss over the past 12 months, Mannatech currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.
Mannatech paid out 75% of its cash flow as dividends last year, which is within a reasonable range for the average corporation.
While the above analysis focuses on dividends relative to a company's earnings, we do note Mannatech's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Consider getting our latest analysis on Mannatech's financial position here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Mannatech's dividend payments. Its dividend payments have declined on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was US$0.80 in 2010, compared to US$0.50 last year. The dividend has shrunk at around 4.6% a year during that period. Mannatech's dividend hasn't shrunk linearly at 4.6% per annum, but the CAGR is a useful estimate of the historical rate of change.
When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Mannatech's EPS have fallen by approximately 69% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Mannatech's earnings per share, which support the dividend, have been anything but stable.
To summarise, shareholders should always check that Mannatech's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Earnings per share are down, and Mannatech's dividend has been cut at least once in the past, which is disappointing. Using these criteria, Mannatech looks quite suboptimal from a dividend investment perspective.
Now, if you want to look closer, it would be worth checking out our free research on Mannatech management tenure, salary, and performance.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.