Dividend Investors: Don’t Be Too Quick To Buy Mortgage Choice Limited (ASX:MOC) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Mortgage Choice Limited (ASX:MOC) is about to go ex-dividend in just 4 days. You can purchase shares before the 2nd of September in order to receive the dividend, which the company will pay on the 15th of October.

Mortgage Choice’s next dividend payment will be AU$0.03 per share, on the back of last year when the company paid a total of AU$0.06 to shareholders. Based on the last year’s worth of payments, Mortgage Choice has a trailing yield of 5.3% on the current stock price of A$1.135. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Mortgage Choice has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Mortgage Choice

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. Mortgage Choice paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Mortgage Choice paid out over the last 12 months.

ASX:MOC Historical Dividend Yield, August 28th 2019
ASX:MOC Historical Dividend Yield, August 28th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Mortgage Choice’s earnings per share have fallen at approximately 6.0% a year over the previous 5 years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Mortgage Choice’s dividend payments per share have declined at 7.3% per year on average over the past 10 years, which is uninspiring. It’s never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company’s health in an attempt to maintain it.

The Bottom Line

Should investors buy Mortgage Choice for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don’t generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Keen to explore more data on Mortgage Choice’s financial performance? Check out our visualisation of its historical revenue and earnings growth.

We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.