Momo Inc. (NASDAQ:MOMO) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 7th of April in order to be eligible for this dividend, which will be paid on the 30th of April.
Momo's next dividend payment will be US$0.74 per share. Last year, in total, the company distributed US$5.37 to shareholders. Last year's total dividend payments show that Momo has a trailing yield of 3.7% on the current share price of $20.53. 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! So we need to check whether the dividend payments are covered, and if earnings are 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. A useful secondary check can be to evaluate whether Momo generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Momo has grown its earnings rapidly, up 55% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.
This is Momo's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.
Has Momo got what it takes to maintain its dividend payments? Momo has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Momo looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Momo for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Momo that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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