Just Four Days Till Mayr-Melnhof Karton AG (VIE:MMK) Will Be Trading Ex-Dividend

Mayr-Melnhof Karton AG (VIE:MMK) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Mayr-Melnhof Karton's shares before the 30th of April to receive the dividend, which will be paid on the 8th of May.

The company's next dividend payment will be €1.50 per share, on the back of last year when the company paid a total of €1.50 to shareholders. Based on the last year's worth of payments, Mayr-Melnhof Karton has a trailing yield of 1.3% on the current stock price of €113.80. If you buy this business for its dividend, you should have an idea of whether Mayr-Melnhof Karton's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Mayr-Melnhof Karton

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mayr-Melnhof Karton paid out a comfortable 48% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Mayr-Melnhof Karton's earnings per share have dropped 17% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mayr-Melnhof Karton's dividend payments per share have declined at 4.6% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Mayr-Melnhof Karton got what it takes to maintain its dividend payments? Mayr-Melnhof Karton has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Mayr-Melnhof Karton has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Mayr-Melnhof Karton (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.