Mid-America Apartment Communities, Inc. (NYSE:MAA) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 11th of October will not receive the dividend, which will be paid on the 31st of October.
Mid-America Apartment Communities's next dividend payment will be US$1.0 per share, on the back of last year when the company paid a total of US$3.8 to shareholders. Looking at the last 12 months of distributions, Mid-America Apartment Communities has a trailing yield of approximately 2.9% on its current stock price of $132.44. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Mid-America Apartment Communities paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. While Mid-America Apartment Communities seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. 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. Over the last year it paid out 59% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Mid-America Apartment Communities'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Mid-America Apartment Communities has grown its earnings rapidly, up 26% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Mid-America Apartment Communities could have strong prospects for future increases to the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mid-America Apartment Communities has delivered an average of 4.6% per year annual increase in its dividend, based on the past ten years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Is Mid-America Apartment Communities an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Mid-America Apartment Communities is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about Mid-America Apartment Communities from a dividend perspective.
Curious what other investors think of Mid-America Apartment Communities? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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