Mr Price Group Limited( JSE:MRP ) is about to trade ex-dividend in the next three days. 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 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. Accordingly, Mr Price Group investors that purchase the stock on or after the 10th of December will not receive the dividend, which will be paid on the 15th of December.
The company's next dividend payment will be R03.232 per share, and in the last 12 months, the company paid a total of R8.97 per share. Calculating the last year's worth of payments shows that Mr Price Group has a trailing yield of 4.1% on the current share price of R0217.14. If you buy this business for its dividend, you should have an idea of whether Mr Price Group's dividend is reliable and sustainable. As a result, readers should always check whether Mr Price Group has been able to grow its dividends, or if the dividend might be cut.
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. Mr Price Group is paying out an acceptable 63% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Mr Price 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.
Check out our latest analysis for Mr Price Group
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Mr Price Group, with earnings per share up 6.6% on average over the last five years. Decent historical earnings per share growth suggests Mr Price Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Mr Price Group has lifted its dividend by approximately 4.5% a year on average. 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 Mr Price Group an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Mr Price Group paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So while Mr Price Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Mr Price Group and understanding them should be part of your investment process.
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.
