Mastermyne Group Limited (ASX:MYE) stock is about to trade ex-dividend in four days. If you purchase the stock on or after the 24th of September, you won't be eligible to receive this dividend, when it is paid on the 15th of October.
Mastermyne Group's next dividend payment will be AU$0.04 per share. Last year, in total, the company distributed AU$0.08 to shareholders. Based on the last year's worth of payments, Mastermyne Group has a trailing yield of 8.9% on the current stock price of A$0.9. If you buy this business for its dividend, you should have an idea of whether Mastermyne Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Mastermyne Group paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 18% of its free cash flow last year.
It's positive to see that Mastermyne Group'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Mastermyne Group's earnings have been skyrocketing, up 63% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Mastermyne Group has increased its dividend at approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Has Mastermyne Group got what it takes to maintain its dividend payments? We like Mastermyne Group'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. Mastermyne Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Mastermyne Group is facing. Every company has risks, and we've spotted 4 warning signs for Mastermyne Group you should know about.
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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