Material Group (TSE:156A) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Material Group Inc. (TSE:156A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Material Group's shares before the 28th of August to receive the dividend, which will be paid on the 30th of November.
The company's next dividend payment will be JP¥26.10 per share, and in the last 12 months, the company paid a total of JP¥26.10 per share. Last year's total dividend payments show that Material Group has a trailing yield of 3.1% on the current share price of JP¥854.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see Material Group paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Material Group generated enough free cash flow to afford its dividend. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
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.
Check out our latest analysis for Material Group
Click here to see how much of its profit Material Group paid out over the last 12 months.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Material Group has grown its earnings rapidly, up 23% a year for the past five years. Material Group is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Material Group's dividend payments are broadly unchanged compared to where they were two years ago.
The Bottom Line
Is Material Group an attractive dividend stock, or better left on the shelf? Material Group has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Material Group, and we would prioritise taking a closer look at it.
While it's tempting to invest in Material Group for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Material Group you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.