Dividend Investors: Don't Be Too Quick To Buy Mortgage Choice Limited (ASX:MOC) For Its Upcoming Dividend
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 Mortgage Choice Limited (ASX:MOC) is about to go ex-dividend in just couple of days. Ex-dividend means that investors that purchase the stock on or after the 2nd of September will not receive this dividend, which will be paid on the 15th of October.
Mortgage Choice's next dividend payment will be AU$0.035 per share, and in the last 12 months, the company paid a total of AU$0.07 per share. Last year's total dividend payments show that Mortgage Choice has a trailing yield of 8.1% on the current share price of A$0.86. If you buy this business for its dividend, you should have an idea of whether Mortgage Choice's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Mortgage Choice
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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see how much of its profit Mortgage Choice paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Mortgage Choice's 13% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mortgage Choice's dividend payments per share have declined at 6.0% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is Mortgage Choice an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Mortgage Choice's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that in mind though, if the poor dividend characteristics of Mortgage Choice don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 3 warning signs for Mortgage Choice you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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