Mesabi Trust (NYSE:MSB) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Mesabi Trust's shares before the 28th of October in order to be eligible for the dividend, which will be paid on the 20th of November.
The company's next dividend payment will be US$1.42 per share, on the back of last year when the company paid a total of US$1.43 to shareholders. Based on the last year's worth of payments, Mesabi Trust has a trailing yield of 4.6% on the current stock price of $30.8. If you buy this business for its dividend, you should have an idea of whether Mesabi Trust'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 Mesabi Trust
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. Mesabi Trust paid out a comfortable 47% of its profit last year. 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. Dividends consumed 57% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Mesabi Trust'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.
Click here to see how much of its profit Mesabi Trust paid out over the last 12 months.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Mesabi Trust has grown its earnings rapidly, up 43% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mesabi Trust's dividend payments per share have declined at 5.4% per year on average over the past 10 years, which is uninspiring. Mesabi Trust is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Mesabi Trust worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Mesabi Trust paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Mesabi Trust, and we would prioritise taking a closer look at it.
In light of that, while Mesabi Trust has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Mesabi Trust that we strongly recommend you have a look at before investing in the company.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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