Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Marine Products Corporation (NYSE:MPX) is about to trade ex-dividend in the next 4 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 Marine Products' shares before the 9th of May to receive the dividend, which will be paid on the 6th of June.
The company's next dividend payment will be US$0.84 per share, and in the last 12 months, the company paid a total of US$0.56 per share. Last year's total dividend payments show that Marine Products has a trailing yield of 4.9% on the current share price of US$11.46. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Marine Products paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Marine Products generated enough free cash flow to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Marine Products paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Marine Products, with earnings per share up 4.0% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Marine Products has delivered an average of 17% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Marine Products? Earnings per share have been growing modestly and Marine Products paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Marine Products from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Marine Products, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for Marine Products you should be aware of.
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.