It Might Not Be A Great Idea To Buy M+S Hydraulic AD (BUL:MSH) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see M+S Hydraulic AD (BUL:MSH) is about to trade ex-dividend in the next four days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase M+S Hydraulic AD's shares before the 2nd of June to receive the dividend, which will be paid on the 15th of July.

The company's upcoming dividend is лв0.26 a share, following on from the last 12 months, when the company distributed a total of лв0.26 per share to shareholders. Based on the last year's worth of payments, M+S Hydraulic AD has a trailing yield of 2.7% on the current stock price of лв9.70. If you buy this business for its dividend, you should have an idea of whether M+S Hydraulic AD's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year M+S Hydraulic AD paid out 108% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether M+S Hydraulic AD generated enough free cash flow to afford its dividend. Over the past year it paid out 173% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given M+S Hydraulic AD's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

See our latest analysis for M+S Hydraulic AD

Click here to see how much of its profit M+S Hydraulic AD 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 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 M+S Hydraulic AD's 9.9% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, M+S Hydraulic AD has lifted its dividend by approximately 1.7% a year on average.

The Bottom Line

Is M+S Hydraulic AD an attractive dividend stock, or better left on the shelf? Not only are earnings per share declining, but M+S Hydraulic AD is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not that we think M+S Hydraulic AD is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in M+S Hydraulic AD and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for M+S Hydraulic AD (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.