Is It Worth Considering Matrix IT Ltd. (TLV:MTRX) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Matrix IT Ltd. (TLV:MTRX) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Matrix IT's shares before the 19th of December in order to receive the dividend, which the company will pay on the 6th of January.

The company's next dividend payment will be ₪0.76 per share, and in the last 12 months, the company paid a total of ₪2.90 per share. Based on the last year's worth of payments, Matrix IT has a trailing yield of 3.3% on the current stock price of ₪88.71. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Matrix IT has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Matrix IT

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Matrix IT distributed an unsustainably high 124% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

It's good to see that while Matrix IT's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Matrix IT's earnings per share have risen 13% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Matrix IT has lifted its dividend by approximately 10% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy Matrix IT for the upcoming dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Matrix IT is paying out so much of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Matrix IT's dividend merits.

On that note, you'll want to research what risks Matrix IT is facing. Every company has risks, and we've spotted 1 warning sign for Matrix IT you should know about.

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.