Mortgage Advice Bureau (Holdings) (LON:MAB1) Has Affirmed Its Dividend Of £0.147

The board of Mortgage Advice Bureau (Holdings) plc (LON:MAB1) has announced that it will pay a dividend of £0.147 per share on the 29th of May. This means the annual payment will be 3.1% of the current stock price, which is lower than the industry average.

See our latest analysis for Mortgage Advice Bureau (Holdings)

Mortgage Advice Bureau (Holdings) Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 119% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 74%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

If the company can't turn things around, EPS could fall by 1.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 137%, which could put the dividend in jeopardy if the company's earnings don't improve.

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

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.02 in 2015 to the most recent total annual payment of £0.281. This means that it has been growing its distributions at 34% per annum over that time. Mortgage Advice Bureau (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Mortgage Advice Bureau (Holdings)'s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Mortgage Advice Bureau (Holdings) is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Mortgage Advice Bureau (Holdings) (of which 1 is a bit unpleasant!) you should know about. 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.