Here's Why We're Wary Of Buying Microequities Asset Management Group's (ASX:MAM) For Its Upcoming Dividend

Readers hoping to buy Microequities Asset Management Group Limited (ASX:MAM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 26th of February will not receive this dividend, which will be paid on the 12th of March.

Microequities Asset Management Group's next dividend payment will be AU$0.02 per share. Last year, in total, the company distributed AU$0.04 to shareholders. Calculating the last year's worth of payments shows that Microequities Asset Management Group has a trailing yield of 6.9% on the current share price of A$0.58. If you buy this business for its dividend, you should have an idea of whether Microequities Asset Management Group's dividend is reliable and sustainable. So we need to investigate whether Microequities Asset Management Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Microequities Asset Management Group

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. Microequities Asset Management Group paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Microequities Asset Management Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Microequities Asset Management Group's earnings per share have fallen at approximately 13% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Microequities Asset Management Group has delivered an average of 41% per year annual increase in its dividend, based on the past two years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is Microequities Asset Management Group worth buying for its dividend? We're not overly enthused to see Microequities Asset Management Group's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Microequities Asset Management Group. We've identified 3 warning signs with Microequities Asset Management Group (at least 1 which is potentially serious), and understanding these should be part of your investment process.

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.

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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. 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.
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