Is It Worth Considering Melisron Ltd. (TLV:MLSR) For Its Upcoming Dividend?

Readers hoping to buy Melisron Ltd. (TLV:MLSR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Melisron's shares before the 2nd of December to receive the dividend, which will be paid on the 25th of December.

The company's next dividend payment will be ₪1.8883774 per share. Last year, in total, the company distributed ₪7.36 to shareholders. Looking at the last 12 months of distributions, Melisron has a trailing yield of approximately 1.8% on its current stock price of ₪405.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Melisron paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Melisron generated enough free cash flow to afford its dividend. It paid out an unsustainably high 277% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Melisron paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Melisron to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Melisron

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Melisron earnings per share are up 3.1% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Melisron has lifted its dividend by approximately 5.0% a year on average. 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 Melisron? Melisron delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 277% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Melisron from a dividend perspective.

However if you're still interested in Melisron as a potential investment, you should definitely consider some of the risks involved with Melisron. Our analysis shows 2 warning signs for Melisron that we strongly recommend you have a look at before investing in the company.

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.