It looks like Mercor SA (WSE: MCR) is set to be ex-dividend within the next 3 days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the registration date. This means that you will have to buy Mercor shares before September 21 to receive the dividend, which will be paid on September 30.
The upcoming dividend for Mercor is 0.57 z per share, an increase from last year’s total dividends per share of 0.25 z. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our goose that lays the golden eggs! That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
See our latest analysis for Mercor
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. Mercor pays only 15% of its after-tax profit, which is comfortably low and leaves plenty of leeway in the event of adverse events. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. It distributed 25% of its free cash flow in the form of dividends, a comfortable level of distribution for most companies.
It is positive to see that Mercor’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a larger margin of security before the dividend is cut.
Click here to see how much of its profits Mercor has paid out in the past 12 months.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. That’s why it’s heartwarming to see Mercor’s profits soar, rising 31% per year over the past five years. Mercor pays less than half of its earnings and cash flow, while simultaneously increasing earnings per share at a rapid rate. This is a very favorable combination which can often lead to a multiplication of the dividend in the long run, if the profits increase and the company pays a higher percentage of its profits.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Mercor has seen its dividend fall by 6.7% per year on average over the past 10 years, which is not great to see. Mercor is a rare case where dividends fell as earnings per share improved. It is unusual to see this and could indicate volatile conditions in the core business, or more rarely an increased focus on reinvesting profits.
Does Mercor have what it takes to maintain its dividend payments? It’s great that Mercor is increasing its earnings per share while simultaneously paying out a small percentage of its earnings and cash flow. It’s disappointing that the dividend has been cut at least once in the past, but as it stands, the low payout ratio suggests a conservative approach to dividends, which we like. There is a lot to like about Mercor, and we would prioritize taking a closer look.
So while Mercor looks good from a dividend standpoint, it’s still worth being aware of the risks inherent in this stock. For example – Mercor has 2 warning signs we think you should be aware.
If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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