Don't Buy Mineralbrunnen Überkingen-Teinach GmbH & Co. KGaA (FRA:MUT) For Its Next Dividend Without Doing These Checks

It looks like Mineralbrunnen Überkingen-Teinach GmbH & Co. KGaA (FRA:MUT) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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, Mineralbrunnen Überkingen-Teinach GmbH KGaA investors that purchase the stock on or after the 10th of July will not receive the dividend, which will be paid on the 12th of July.

The company's upcoming dividend is €0.65 a share, following on from the last 12 months, when the company distributed a total of €0.65 per share to shareholders. Based on the last year's worth of payments, Mineralbrunnen Überkingen-Teinach GmbH KGaA has a trailing yield of 4.2% on the current stock price of €15.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA

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. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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 paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Mineralbrunnen Überkingen-Teinach GmbH KGaA'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 how much of its profit Mineralbrunnen Überkingen-Teinach GmbH KGaA paid out over the last 12 months.

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Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Mineralbrunnen Überkingen-Teinach GmbH KGaA's earnings per share have been shrinking at 2.9% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Mineralbrunnen Überkingen-Teinach GmbH KGaA has increased its dividend at approximately 12% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Mineralbrunnen Überkingen-Teinach GmbH KGaA is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Mineralbrunnen Überkingen-Teinach GmbH KGaA an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Mineralbrunnen Überkingen-Teinach GmbH KGaA's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Mineralbrunnen Überkingen-Teinach GmbH KGaA despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for Mineralbrunnen Überkingen-Teinach GmbH KGaA that we strongly recommend you have a look at before investing in the company.

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.

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