It looks like Monash IVF Group Limited (ASX:MVF) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 5th of September will not receive this dividend, which will be paid on the 11th of October.
Monash IVF Group's next dividend payment will be AU$0.03 per share, on the back of last year when the company paid a total of AU$0.06 to shareholders. Calculating the last year's worth of payments shows that Monash IVF Group has a trailing yield of 5.8% on the current share price of A$1.04. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Monash IVF Group paid out more than half (71%) 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. Fortunately, it paid out only 50% of its free cash flow in the past year.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Monash IVF Group's earnings have been skyrocketing, up 33% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Monash IVF Group has seen its dividend decline 1.6% per annum on average over the past 5 years, which is not great to see.
The Bottom Line
Is Monash IVF Group an attractive dividend stock, or better left on the shelf? We like Monash IVF Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
Curious what other investors think of Monash IVF Group? 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.