We Wouldn't Be Too Quick To Buy Magellan Financial Group Limited (ASX:MFG) Before It Goes Ex-Dividend
Magellan Financial Group Limited (ASX:MFG) is about to trade ex-dividend in the next two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Magellan Financial Group's shares before the 20th of February to receive the dividend, which will be paid on the 6th of March.
The company's next dividend payment will be AU$0.294 per share, on the back of last year when the company paid a total of AU$0.59 to shareholders. Based on the last year's worth of payments, Magellan Financial Group stock has a trailing yield of around 6.2% on the current share price of AU$9.42. If you buy this business for its dividend, you should have an idea of whether Magellan Financial Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Magellan Financial Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Magellan Financial Group is paying out an acceptable 58% of its profit, a common payout level among most companies.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Magellan Financial Group's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Magellan Financial Group has lifted its dividend by approximately 19% a year on average.
To Sum It Up
Is Magellan Financial Group an attractive dividend stock, or better left on the shelf? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of Magellan Financial Group don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 2 warning signs for Magellan Financial Group (of which 1 is potentially serious!) you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
