Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Matthews International Corporation (NASDAQ:MATW) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 2nd of August, you won't be eligible to receive this dividend, when it is paid on the 19th of August.
Matthews International's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Looking at the last 12 months of distributions, Matthews International has a trailing yield of approximately 2.3% on its current stock price of $34.66. If you buy this business for its dividend, you should have an idea of whether Matthews International's dividend is reliable and sustainable. So we need to investigate whether Matthews International can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Matthews International paid out a comfortable 34% of its profit last year. 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. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Matthews International'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Matthews International, with earnings per share up 3.2% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Matthews International has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.
Is Matthews International worth buying for its dividend? Earnings per share have been growing moderately, and Matthews International is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Matthews International is halfway there. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Matthews International? See what the four analysts we track 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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.