The board of Money3 Corporation Limited (ASX:MNY) has announced that it will pay a dividend on the 6th of October, with investors receiving A$0.07 per share. This means that the annual payment will be 5.4% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Money3
Money3's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Money3 was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
The next year is set to see EPS grow by 23.4%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$0.0425 in 2012, and the most recent fiscal year payment was A$0.13. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Money3 has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Money3 Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Money3 has seen EPS rising for the last five years, at 5.1% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Money3's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Money3's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Money3 has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About ASX:SVR
Good value slight.
