Yahoo Finance Dividend Investors: Don't Be Too Quick To Buy MSC Industrial Direct Co., Inc. (NYSE:MSM) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MSC Industrial Direct Co., Inc. (NYSE:MSM) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase MSC Industrial Direct's shares before the 9th of July to receive the dividend, which will be paid on the 23rd of July.
The company's next dividend payment will be US$0.83 per share, and in the last 12 months, the company paid a total of US$3.32 per share. Looking at the last 12 months of distributions, MSC Industrial Direct has a trailing yield of approximately 4.2% on its current stock price of US$78.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for MSC Industrial Direct
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. MSC Industrial Direct is paying out an acceptable 64% of its profit, a common payout level among most companies. 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 55% 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 MSC Industrial Direct'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 the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that MSC Industrial Direct's earnings are down 2.4% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, MSC Industrial Direct has lifted its dividend by approximately 9.7% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
From a dividend perspective, should investors buy or avoid MSC Industrial Direct? While earnings per share are shrinking, it's encouraging to see that at least MSC Industrial Direct's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: MSC Industrial Direct has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for MSC Industrial Direct? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
