Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Martin Marietta Materials, Inc. (NYSE:MLM) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 30th of August in order to receive the dividend, which the company will pay on the 30th of September.
Martin Marietta Materials's next dividend payment will be US$0.55 per share, and in the last 12 months, the company paid a total of US$2.20 per share. Calculating the last year's worth of payments shows that Martin Marietta Materials has a trailing yield of 0.9% on the current share price of $252.33. 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. Martin Marietta Materials has a low and conservative payout ratio of just 24% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Martin Marietta Materials's earnings have been skyrocketing, up 25% per annum 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Martin Marietta Materials has delivered 3.2% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Martin Marietta Materials is keeping back more of its profits to grow the business.
To Sum It Up
Is Martin Marietta Materials worth buying for its dividend? We love that Martin Marietta Materials is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Martin Marietta Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Martin Marietta Materials? See what the 13 analysts we track 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.