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We Wouldn't Be Too Quick To Buy Medibank Private Limited (ASX:MPL) Before It Goes Ex-Dividend

Simply Wall St

It looks like Medibank Private Limited (ASX:MPL) is about to go ex-dividend in the next four days. You will need to purchase shares before the 2nd of September to receive the dividend, which will be paid on the 24th of September.

Medibank Private's next dividend payment will be AU$0.063 per share, on the back of last year when the company paid a total of AU$0.12 to shareholders. Calculating the last year's worth of payments shows that Medibank Private has a trailing yield of 4.3% on the current share price of A$2.81. If you buy this business for its dividend, you should have an idea of whether Medibank Private's dividend is reliable and sustainable. So we need to investigate whether Medibank Private can afford its dividend, and if the dividend could grow.

View our latest analysis for Medibank Private

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. Medibank Private paid out 105% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Medibank Private earnings per share are up 2.0% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, five years ago, Medibank Private has lifted its dividend by approximately 18% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Medibank Private an attractive dividend stock, or better left on the shelf? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 105% of last year's earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in Medibank Private despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Medibank Private has 1 warning sign we think you should be aware of.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.