Only Four Days Left To Cash In On Magellan Aerospace's (TSE:MAL) Dividend

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 Magellan Aerospace Corporation (TSE:MAL) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 16th of December will not receive the dividend, which will be paid on the 31st of December.

Magellan Aerospace's upcoming dividend is CA$0.10 a share, following on from the last 12 months, when the company distributed a total of CA$0.42 per share to shareholders. Based on the last year's worth of payments, Magellan Aerospace stock has a trailing yield of around 4.4% on the current share price of CA$9.51. If you buy this business for its dividend, you should have an idea of whether Magellan Aerospace's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Magellan Aerospace

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Magellan Aerospace is paying out an acceptable 69% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 29% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Magellan Aerospace'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.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Magellan Aerospace's earnings per share have fallen at approximately 8.8% a year over the previous 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. Magellan Aerospace has delivered 20% dividend growth per year on average over the past seven years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Should investors buy Magellan Aerospace for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Magellan Aerospace from a dividend perspective.

If you want to look further into Magellan Aerospace, it's worth knowing the risks this business faces. Our analysis shows 3 warning signs for Magellan Aerospace and you should be aware of these before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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