The Mosaic Company (NYSE:MOS) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Mosaic investors that purchase the stock on or after the 6th of December will not receive the dividend, which will be paid on the 21st of December.
The company's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.80 to shareholders. Calculating the last year's worth of payments shows that Mosaic has a trailing yield of 2.2% on the current share price of $35.89. If you buy this business for its dividend, you should have an idea of whether Mosaic's dividend is reliable and sustainable. As a result, readers should always check whether Mosaic has been able to grow its dividends, or if the dividend might be cut.
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. Mosaic has a low and conservative payout ratio of just 20% of its income after tax. 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. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Mosaic's earnings have been skyrocketing, up 51% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Mosaic looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mosaic has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. Mosaic is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Mosaic worth buying for its dividend? Mosaic has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
So while Mosaic looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 3 warning signs for Mosaic (1 is concerning!) that you ought to be aware of before buying the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.