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 MTY Food Group Inc. (TSE:MTY) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase MTY Food Group's shares on or after the 2nd of February, you won't be eligible to receive the dividend, when it is paid on the 15th of February.
The company's next dividend payment will be CA$0.25 per share, on the back of last year when the company paid a total of CA$0.84 to shareholders. Based on the last year's worth of payments, MTY Food Group has a trailing yield of 1.5% on the current stock price of CA$67.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for MTY Food Group
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. MTY Food Group is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see MTY Food Group earnings per share are up 6.8% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. MTY Food Group has delivered 16% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is MTY Food Group an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and MTY Food Group is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and MTY Food Group is halfway there. There's a lot to like about MTY Food Group, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks MTY Food Group is facing. Case in point: We've spotted 1 warning sign for MTY Food Group you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
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