MTY Food Group's (TSE:MTY) Shareholders Will Receive A Bigger Dividend Than Last Year

MTY Food Group Inc.'s (TSE:MTY) periodic dividend will be increasing on the 14th of February to CA$0.33, with investors receiving 18% more than last year's CA$0.28. Even though the dividend went up, the yield is still quite low at only 2.2%.

See our latest analysis for MTY Food Group

MTY Food Group's Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, MTY Food Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 8.1% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from CA$0.34 total annually to CA$1.12. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. MTY Food Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. MTY Food Group has impressed us by growing EPS at 8.1% per year over the past five years. MTY Food Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

MTY Food Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that MTY Food Group is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for MTY Food Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.