Only Three Days Left To Cash In On Maple Leaf Foods' (TSE:MFI) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Maple Leaf Foods Inc. (TSE:MFI) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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. 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. Therefore, if you purchase Maple Leaf Foods' shares on or after the 7th of March, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be CA$0.24 per share, and in the last 12 months, the company paid a total of CA$0.96 per share. Based on the last year's worth of payments, Maple Leaf Foods has a trailing yield of 3.8% on the current stock price of CA$25.46. If you buy this business for its dividend, you should have an idea of whether Maple Leaf Foods's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Maple Leaf Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Maple Leaf Foods distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Luckily it paid out just 24% of its free cash flow last year.

It's good to see that while Maple Leaf Foods's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Maple Leaf Foods, with earnings per share up 5.3% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Maple Leaf Foods has delivered an average of 20% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Maple Leaf Foods worth buying for its dividend? Maple Leaf Foods has been steadily growing its earnings per share, and it is paying out just 24% of its cash flow but an uncomfortably high 112% of its income. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So if you want to do more digging on Maple Leaf Foods, you'll find it worthwhile knowing the risks that this stock faces. Be aware that Maple Leaf Foods is showing 3 warning signs in our investment analysis, and 2 of those can't be ignored...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.