Metro Inc. (TSE:MRU) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Metro Inc. (TSE:MRU) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Metro's shares before the 3rd of September in order to receive the dividend, which the company will pay on the 22nd of September.
The company's next dividend payment will be CA$0.4075 per share, on the back of last year when the company paid a total of CA$1.63 to shareholders. Last year's total dividend payments show that Metro has a trailing yield of 1.8% on the current share price of CA$88.26. If you buy this business for its dividend, you should have an idea of whether Metro's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Metro paid out a comfortable 38% of its profit last year. 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. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Metro'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.
View our latest analysis for Metro
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Metro, with earnings per share up 6.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Metro has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.
To Sum It Up
Should investors buy Metro for the upcoming dividend? Earnings per share growth has been growing somewhat, and Metro is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Metro is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while Metro has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Metro that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.