MEP Infrastructure Developers Limited (NSE:MEP) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 29th of August will not receive the dividend, which will be paid on the 6th of October.
MEP Infrastructure Developers's upcoming dividend is ₹0.30 a share, following on from the last 12 months, when the company distributed a total of ₹0.30 per share to shareholders. Based on the last year's worth of payments, MEP Infrastructure Developers stock has a trailing yield of around 1.1% on the current share price of ₹28.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether MEP Infrastructure Developers can afford its dividend, and if the dividend could grow.
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. MEP Infrastructure Developers has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether MEP Infrastructure Developers generated enough free cash flow to afford its dividend. The good news is it paid out just 1.1% of its free cash flow in the last year.
It's positive to see that MEP Infrastructure Developers'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?
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. It's encouraging to see MEP Infrastructure Developers has grown its earnings rapidly, up 37% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, MEP Infrastructure Developers looks like a promising growth company.
MEP Infrastructure Developers also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 4 years, MEP Infrastructure Developers has increased its dividend at approximately 11% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy MEP Infrastructure Developers for the upcoming dividend? MEP Infrastructure Developers 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. MEP Infrastructure Developers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about MEP Infrastructure Developers's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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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