MaxiPARTS (ASX:MXI) Is Paying Out A Larger Dividend Than Last Year
MaxiPARTS Limited (ASX:MXI) has announced that it will be increasing its periodic dividend on the 15th of September to A$0.0322, which will be 29% higher than last year's comparable payment amount of A$0.025. Even though the dividend went up, the yield is still quite low at only 2.2%.
See our latest analysis for MaxiPARTS
MaxiPARTS' Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by MaxiPARTS' earnings. This means that a large portion of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 58.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from A$0.425 total annually to A$0.0644. This works out to a decline of approximately 85% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. MaxiPARTS' EPS has fallen by approximately 11% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On MaxiPARTS' Dividend
In summary, while it's always good to see the dividend being raised, we don't think MaxiPARTS' payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for MaxiPARTS that investors should know about before committing capital to this stock. 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.
