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 Mind Gym PLC (LON:MIND) is about to go ex-dividend in just 4 days. You can purchase shares before the 1st of August in order to receive the dividend, which the company will pay on the 30th of August.
Mind Gym's upcoming dividend is UK£0.016 a share, following on from the last 12 months, when the company distributed a total of UK£0.032 per share to shareholders. Based on the last year's worth of payments, Mind Gym stock has a trailing yield of around 2.6% on the current share price of £1.215. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Mind Gym has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mind Gym paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. That's why it's comforting to see Mind Gym's earnings have been skyrocketing, up 46% per annum 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, Mind Gym could have strong prospects for future increases to the dividend.
Unfortunately Mind Gym has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
The Bottom Line
Has Mind Gym got what it takes to maintain its dividend payments? 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 Mind Gym is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about Mind Gym from a dividend perspective.
Curious about whether Mind Gym has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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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