It looks like Morses Club PLC (LON:MCL) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 24th of December will not receive the dividend, which will be paid on the 17th of January.
Morses Club's next dividend payment will be UK£0.026 per share, on the back of last year when the company paid a total of UK£0.078 to shareholders. Looking at the last 12 months of distributions, Morses Club has a trailing yield of approximately 6.2% on its current stock price of £1.26. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Morses Club's earnings per share have risen 18% per annum over the last 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 three years, Morses Club has increased its dividend at approximately 6.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Morses Club worth buying for its dividend? Earnings per share are growing nicely, and Morses Club is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Morses Club ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
Wondering what the future holds for Morses Club? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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