Mortgage Advice Bureau (Holdings) (LON:MAB1) Will Pay A Smaller Dividend Than Last Year

Mortgage Advice Bureau (Holdings) plc's (LON:MAB1) dividend is being reduced to UK£0.15 on the 30th of May. This payment takes the dividend yield to 2.4%, which only provides a modest boost to overall returns.

See our latest analysis for Mortgage Advice Bureau (Holdings)

Mortgage Advice Bureau (Holdings)'s Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, Mortgage Advice Bureau (Holdings) was paying out 80% of earnings, but a comparatively small 60% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 24.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Mortgage Advice Bureau (Holdings)'s Dividend Has Lacked Consistency

Mortgage Advice Bureau (Holdings) has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from UK£0.02 in 2015 to the most recent annual payment of UK£0.28. This works out to be a compound annual growth rate (CAGR) of approximately 46% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Mortgage Advice Bureau (Holdings) has grown earnings per share at 5.1% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Mortgage Advice Bureau (Holdings)'s Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Mortgage Advice Bureau (Holdings) that investors should know about before committing capital to this stock. Is Mortgage Advice Bureau (Holdings) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.