Melcor Developments Ltd. (TSE:MRD) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Melcor Developments Ltd. (TSE:MRD) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Melcor Developments investors that purchase the stock on or after the 14th of December will not receive the dividend, which will be paid on the 29th of December.
The company's next dividend payment will be CA$0.16 per share. Last year, in total, the company distributed CA$0.64 to shareholders. Calculating the last year's worth of payments shows that Melcor Developments has a trailing yield of 5.8% on the current share price of CA$11.1. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Melcor Developments can afford its dividend, and if the dividend could grow.
See our latest analysis for Melcor Developments
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Melcor Developments paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Melcor Developments generated enough free cash flow to afford its dividend. Fortunately, it paid out only 38% of its free cash flow in the past year.
It's positive to see that Melcor Developments'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.
Click here to see how much of its profit Melcor Developments paid out over the last 12 months.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Melcor Developments has grown its earnings rapidly, up 21% a year for the past five years. Melcor Developments is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Melcor Developments has lifted its dividend by approximately 2.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Melcor Developments is keeping back more of its profits to grow the business.
To Sum It Up
Is Melcor Developments an attractive dividend stock, or better left on the shelf? Melcor Developments has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Melcor Developments looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Melcor Developments is facing. To help with this, we've discovered 3 warning signs for Melcor Developments (1 is a bit concerning!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
