Stock Analysis

Four Days Left To Buy Michael Hill International Limited (ASX:MHJ) Before The Ex-Dividend Date

  •  Updated
ASX:MHJ
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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 Michael Hill International Limited (ASX:MHJ) is about to go ex-dividend in just four days. If you purchase the stock on or after the 11th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.

Michael Hill International's upcoming dividend is AU$0.015 a share, following on from the last 12 months, when the company distributed a total of AU$0.03 per share to shareholders. Calculating the last year's worth of payments shows that Michael Hill International has a trailing yield of 4.4% on the current share price of A$0.68. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Michael Hill International

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Michael Hill International paid out a comfortable 28% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 0.0008% of its free cash flow in the 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.

historic-dividend
ASX:MHJ Historic Dividend March 6th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Michael Hill International's 6.0% per annum decline in earnings in 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. Michael Hill International has seen its dividend decline 8.4% per annum on average over the past five years, which is not great to see. 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Michael Hill International? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Michael Hill International from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for Michael Hill International that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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