Madison Pacific Properties Inc. (TSE:MPC) stock is about to trade ex-dividend in four days. You can purchase shares before the 8th of February in order to receive the dividend, which the company will pay on the 23rd of February.
Madison Pacific Properties's next dividend payment will be CA$0.052 per share. Last year, in total, the company distributed CA$0.10 to shareholders. Looking at the last 12 months of distributions, Madison Pacific Properties has a trailing yield of approximately 2.5% on its current stock price of CA$4.25. 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.
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. Madison Pacific Properties is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Madison Pacific Properties generated enough free cash flow to afford its dividend. It distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Madison Pacific Properties's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Madison Pacific Properties's dividend payments are broadly unchanged compared to where they were 10 years ago.
The Bottom Line
From a dividend perspective, should investors buy or avoid Madison Pacific Properties? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. Overall, it's hard to get excited about Madison Pacific Properties from a dividend perspective.
On that note, you'll want to research what risks Madison Pacific Properties is facing. For instance, we've identified 4 warning signs for Madison Pacific Properties (2 are concerning) you should be aware of.
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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