AS Merko Ehitus (TAL:MRK1T) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy AS Merko Ehitus (TAL:MRK1T) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase AS Merko Ehitus' shares on or after the 7th of June, you won't be eligible to receive the dividend, when it is paid on the 21st of June.

The company's next dividend payment will be €1.30 per share. Last year, in total, the company distributed €1.30 to shareholders. Calculating the last year's worth of payments shows that AS Merko Ehitus has a trailing yield of 7.3% on the current share price of €17.74. If you buy this business for its dividend, you should have an idea of whether AS Merko Ehitus's dividend is reliable and sustainable. So we need to investigate whether AS Merko Ehitus can afford its dividend, and if the dividend could grow.

View our latest analysis for AS Merko Ehitus

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. AS Merko Ehitus is paying out an acceptable 52% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.

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.

Click here to see how much of its profit AS Merko Ehitus paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, AS Merko Ehitus's earnings per share have been growing at 18% a year for the past five years. AS Merko Ehitus has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, AS Merko Ehitus has increased its dividend at approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is AS Merko Ehitus an attractive dividend stock, or better left on the shelf? AS Merko Ehitus's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for AS Merko Ehitus you should be aware of.

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.