Here's Why We're Wary Of Buying Moneysupermarket.com Group's (LON:MONY) For Its Upcoming Dividend

Readers hoping to buy Moneysupermarket.com Group PLC (LON:MONY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 8th of April will not receive the dividend, which will be paid on the 20th of May.

Moneysupermarket.com Group's next dividend payment will be UK£0.086 per share. Last year, in total, the company distributed UK£0.12 to shareholders. Looking at the last 12 months of distributions, Moneysupermarket.com Group has a trailing yield of approximately 4.4% on its current stock price of £2.67. 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.

View our latest analysis for Moneysupermarket.com Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Moneysupermarket.com Group paid out 91% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Moneysupermarket.com Group generated enough free cash flow to afford its dividend. It paid out 86% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Moneysupermarket.com Group's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

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. With that in mind, we're encouraged by the steady growth at Moneysupermarket.com Group, with earnings per share up 2.2% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Moneysupermarket.com Group has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Moneysupermarket.com Group? While earnings per share have been growing slowly, Moneysupermarket.com Group is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Bottom line: Moneysupermarket.com Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Moneysupermarket.com Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Moneysupermarket.com Group that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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