Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
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 MPS Limited (NSE:MPSLTD) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 16th of July, you won't be eligible to receive this dividend, when it is paid on the 23rd of August.
MPS's upcoming dividend is ₹25.00 a share, following on from the last 12 months, when the company distributed a total of ₹25.00 per share to shareholders. Based on the last year's worth of payments, MPS stock has a trailing yield of around 4.4% on the current share price of ₹575.85. If you buy this business for its dividend, you should have an idea of whether MPS's dividend is reliable and sustainable. So we need to investigate whether MPS can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. MPS paid out 61% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see MPS's earnings per share have risen 10% per annum over the last five years.
MPS has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
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, 9 years ago, MPS has lifted its dividend by approximately 43% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid MPS? We like MPS's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
Want to learn more about MPS's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.