Is MyState Limited (ASX:MYS) a good dividend stock? How would you know? A dividend paying company with growing earnings can be rewarding in the long term. Unfortunately, one common occurrence with dividend companies is for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A high yield and a long history of paying dividends is an appealing combination for MyState. It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can offer a lot of insight when buying a company for its dividend, and we’ll go through these below.Click the interactive chart for our full dividend analysis
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, MyState paid out 86% of its profit as dividends. It’s paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
We update our data on MyState every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. MyState has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past ten-year period, the first annual payment was AU$0.10 in 2009, compared to AU$0.29 last year. Dividends per share have grown at approximately 11% per year over this time.
Dividend Growth Potential
While dividend payments have been relatively stable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend’s purchasing power over the long term. MyState has grown its earnings per share at 0.4% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company is struggling to grow. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
To summarise, shareholders should always check that MyState’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think MyState has an acceptable payout ratio. Second, earnings growth has been mediocre, but at least the dividends have been relatively stable. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than MyState out there.
Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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 email@example.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.