Do These 3 Checks Before Buying Madison Pacific Properties Inc. (TSE:MPC) For Its Upcoming Dividend

It looks like Madison Pacific Properties Inc. (TSE:MPC) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Madison Pacific Properties' shares on or after the 27th of May, you won't be eligible to receive the dividend, when it is paid on the 4th of June.

The company's next dividend payment will be CA$0.34 per share, on the back of last year when the company paid a total of CA$0.10 to shareholders. Based on the last year's worth of payments, Madison Pacific Properties has a trailing yield of 2.1% on the current stock price of CA$5.08. If you buy this business for its dividend, you should have an idea of whether Madison Pacific Properties's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Our free stock report includes 5 warning signs investors should be aware of before investing in Madison Pacific Properties. Read for free now.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Madison Pacific Properties paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.

See our latest analysis for Madison Pacific Properties

Click here to see how much of its profit Madison Pacific Properties paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Madison Pacific Properties's 18% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Madison Pacific Properties dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Is Madison Pacific Properties worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. Worse, Madison Pacific Properties's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Madison Pacific Properties.

So if you're still interested in Madison Pacific Properties despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, Madison Pacific Properties has 5 warning signs (and 3 which don't sit too well with us) we think 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.