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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Mannatech, Incorporated (NASDAQ:MTEX) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 29th of September.
Mannatech's next dividend payment will be US$0.16 per share, and in the last 12 months, the company paid a total of US$0.50 per share. Based on the last year's worth of payments, Mannatech has a trailing yield of 2.9% on the current stock price of $17.15. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Mannatech paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Mannatech generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Mannatech'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?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Mannatech's earnings are down 4.9% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Mannatech dividends are largely the same as they were four years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
Should investors buy Mannatech for the upcoming dividend? Mannatech has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about Mannatech from a dividend perspective.
While it's tempting to invest in Mannatech for the dividends alone, you should always be mindful of the risks involved. We've identified 4 warning signs with Mannatech (at least 2 which are a bit concerning), and understanding them should be part of your investment process.
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.
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. 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.
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