MJ Gleeson plc (LON:GLE) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 5th of March will not receive this dividend, which will be paid on the 3rd of April.
MJ Gleeson’s upcoming dividend is UK£0.12 a share, following on from the last 12 months, when the company distributed a total of UK£0.34 per share to shareholders. Based on the last year’s worth of payments, MJ Gleeson has a trailing yield of 3.7% on the current stock price of £9.26. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether MJ Gleeson can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. MJ Gleeson paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. 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. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want look more closely here.
While MJ Gleeson’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were MJ Gleeson to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
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. This is why it’s a relief to see MJ Gleeson earnings per share are up 7.5% per annum over the last five years. Earnings have been growing at a steady rate, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, eight years ago, MJ Gleeson has lifted its dividend by approximately 27% 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.
To Sum It Up
Has MJ Gleeson got what it takes to maintain its dividend payments? MJ Gleeson is paying out a reasonable percentage of its income and an uncomfortably high 91% of its cash flow as dividends. At least earnings per share have been growing steadily. It’s not that we think MJ Gleeson is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.
Ever wonder what the future holds for MJ Gleeson? See what the five 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.