M+S Hydraulic AD (BUL:MSH) Could Be A Buy For Its Upcoming Dividend

M+S Hydraulic AD (BUL:MSH) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase M+S Hydraulic AD's shares before the 31st of May in order to receive the dividend, which the company will pay on the 14th of July.

The company's next dividend payment will be лв0.40 per share, on the back of last year when the company paid a total of лв0.40 to shareholders. Based on the last year's worth of payments, M+S Hydraulic AD stock has a trailing yield of around 4.2% on the current share price of BGN9.6. 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.

Check out our latest analysis for M+S Hydraulic AD

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. M+S Hydraulic AD paid out a comfortable 44% 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. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that M+S Hydraulic AD's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see M+S Hydraulic AD has grown its earnings rapidly, up 20% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, M+S Hydraulic AD has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid M+S Hydraulic AD? Earnings per share have grown at a nice rate in recent times and over the last year, M+S Hydraulic AD paid out less than half its earnings and a bit over half its free cash flow. M+S Hydraulic AD looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while M+S Hydraulic AD looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for M+S Hydraulic AD you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.