Stock Analysis

Should You Buy Menora Mivtachim Holdings Ltd (TLV:MMHD) For Its Upcoming Dividend?

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TASE:MMHD
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Menora Mivtachim Holdings Ltd (TLV:MMHD) is about to go ex-dividend in just 2 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of February will not receive this dividend, which will be paid on the 1st of March.

The upcoming dividend for Menora Mivtachim Holdings will put a total of ₪1.58 per share in shareholders' pockets, up from last year's total dividends of ₪0.79. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Menora Mivtachim Holdings

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. Menora Mivtachim Holdings is paying out just 9.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Menora Mivtachim Holdings paid out over the last 12 months.

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TASE:MMHD Historic Dividend February 19th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Menora Mivtachim Holdings's earnings per share have risen 20% per annum 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. Menora Mivtachim Holdings has seen its dividend decline 9.4% per annum on average over the past seven years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

From a dividend perspective, should investors buy or avoid Menora Mivtachim Holdings? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Menora Mivtachim Holdings more closely.

While it's tempting to invest in Menora Mivtachim Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Menora Mivtachim Holdings that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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