Yahoo Finance Do These 3 Checks Before Buying Mesabi Trust (NYSE:MSB) For Its Upcoming Dividend
Readers hoping to buy Mesabi Trust (NYSE:MSB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 29th of April in order to be eligible for this dividend, which will be paid on the 20th of May.
Mesabi Trust's next dividend payment will be US$0.89 per share. Last year, in total, the company distributed US$1.43 to shareholders. Based on the last year's worth of payments, Mesabi Trust has a trailing yield of 4.0% on the current stock price of $35.81. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Mesabi Trust
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. Mesabi Trust paid out 118% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Mesabi Trust paid out more free cash flow than it generated - 158%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Mesabi Trust's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see how much of its profit Mesabi Trust paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. 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 discomforted by Mesabi Trust's 5.7% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mesabi Trust has seen its dividend decline 5.4% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Final Takeaway
Has Mesabi Trust got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (118%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that in mind though, if the poor dividend characteristics of Mesabi Trust don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 2 warning signs for Mesabi Trust you should be aware of.
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. 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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