There’s a lot to like about the upcoming €0.05 dividend from MFE-Mediaforeurope (BIT:MFEB)

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Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see MFE-Mediaforeurope NV (BIT:MFEB) is set to trade ex-dividend in the next 3 days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you will not be on the company’s books as of the record date. As a result, MFE-Mediaforeurope investors who buy the stock on or after September 19 will not receive the dividend, which will be paid on September 21.

The company’s next dividend payment will be €0.05 per share. Last year, in total, the company distributed €0.05 to shareholders. Based on the value of last year’s payouts, the MFE-Mediaforeurope share has a rolling yield of approximately 9.2% on the current share price of €0.544. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. We therefore need to check whether dividend payments are covered and whether profits are increasing.

Discover our latest analysis for MFE-Mediaforeurope

Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Fortunately, MFE-Mediaforeurope’s payout rate is modest, at just 30% of profits. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. The good thing is that dividends were well covered by free cash flow, with the company paying out 0.2% of its free cash flow last year.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

BIT: MFEB Historic Dividend September 15, 2022

Have earnings and dividends increased?

Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that MFE-Mediaforeurope has grown its revenues rapidly, growing by 64% per year over the past five years. Earnings per share have grown very rapidly and the company is paying out a relatively small percentage of its earnings and cash flow. Companies with rising earnings and low payout rates are often the best long-term dividend-paying stocks because the company can both increase its earnings and increase the percentage of earnings it pays out, essentially multiplying the dividend.

Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Dividend payouts per MFE-Mediaforeurope share have fallen by 6.7% per year on average over the past 10 years, which is not encouraging. It is unusual to see earnings per share increase at the same time as dividends per share decrease. We’re hoping that’s because the company is reinvesting heavily in its business, but it could also suggest that business is lumpy.

To sum up

From a dividend perspective, should investors buy or avoid MFE-Mediaforeurope? It’s great that MFE-Mediaforeurope is increasing its earnings per share while simultaneously paying out a small percentage of its profits and cash flow. It’s disappointing to see the dividend cut at least once in the past, but as things stand, the low payout ratio suggests a conservative approach to dividends, which we like. Overall, we think this is an attractive combination worthy of further research.

On that note, you will want to research the risks that MFE-Mediaforeurope faces. For example, MFE-Mediaforeurope has 3 warning signs (and 1 which is potentially serious) that we think you should know about.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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