We Wouldn't Be Too Quick To Buy Mattioli Woods plc (LON:MTW) Before It Goes Ex-Dividend

It looks like Mattioli Woods plc (LON:MTW) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Mattioli Woods' shares before the 21st of September in order to receive the dividend, which the company will pay on the 3rd of November.

The company's next dividend payment will be UK£0.18 per share, and in the last 12 months, the company paid a total of UK£0.27 per share. Looking at the last 12 months of distributions, Mattioli Woods has a trailing yield of approximately 4.3% on its current stock price of £6.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Mattioli Woods can afford its dividend, and if the dividend could grow.

See our latest analysis for Mattioli Woods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mattioli Woods distributed an unsustainably high 179% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Mattioli Woods's earnings per share have fallen at approximately 14% a year over the previous 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. Mattioli Woods has delivered 16% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Mattioli Woods is already paying out 179% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Should investors buy Mattioli Woods for the upcoming dividend? Not only are earnings per share shrinking, but Mattioli Woods is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Mattioli Woods doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Mattioli Woods don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Mattioli Woods that you should be aware of before investing in their shares.

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.