There's A Lot To Like About MPM Corpóreos' (BVMF:ESPA3) Upcoming R$0.082 Dividend

By
Simply Wall St
Published
September 03, 2021
BOVESPA:ESPA3
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see MPM Corpóreos S.A. (BVMF:ESPA3) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, MPM Corpóreos investors that purchase the stock on or after the 8th of September will not receive the dividend, which will be paid on the 22nd of September.

The upcoming dividend for MPM Corpóreos is R$0.082 per share. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for MPM Corpóreos

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. MPM Corpóreos paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 15% of its free cash flow in the last year.

It's positive to see that MPM Corpóreos'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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
BOVESPA:ESPA3 Historic Dividend September 4th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, MPM Corpóreos's earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

We'd also point out that MPM Corpóreos issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

This is MPM Corpóreos's first year of paying a dividend, so it doesn't have much of a history yet to compare to.

Final Takeaway

Has MPM Corpóreos got what it takes to maintain its dividend payments? We love that MPM Corpóreos is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in MPM Corpóreos for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for MPM Corpóreos (of which 1 shouldn't be ignored!) you should know about.

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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