Melisron (TLV:MLSR) Could Be A Buy For Its Upcoming Dividend

Melisron Ltd. (TLV:MLSR) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Melisron's shares before the 28th of May in order to be eligible for the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be ₪1.8913778 per share, on the back of last year when the company paid a total of ₪7.36 to shareholders. Looking at the last 12 months of distributions, Melisron has a trailing yield of approximately 2.3% on its current stock price of ₪320.50. If you buy this business for its dividend, you should have an idea of whether Melisron's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Melisron has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Melisron generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View 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?

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Melisron earnings per share are up 2.4% per annum over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Melisron has lifted its dividend by approximately 6.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Melisron an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Melisron is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Melisron is halfway there. Melisron looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Melisron is facing. To help with this, we've discovered 3 warning signs for Melisron (1 is potentially serious!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking 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.