MAPFRE Middlesea (MTSE:MMS) Is Increasing Its Dividend To €0.0731

The board of MAPFRE Middlesea p.l.c. (MTSE:MMS) has announced that it will be paying its dividend of €0.0731 on the 24th of May, an increased payment from last year's comparable dividend. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for MAPFRE Middlesea

MAPFRE Middlesea's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, MAPFRE Middlesea's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 5.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was €0.045 in 2014, and the most recent fiscal year payment was €0.0731. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

MAPFRE Middlesea Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. MAPFRE Middlesea has impressed us by growing EPS at 5.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, we always like to see the dividend being raised, but we don't think MAPFRE Middlesea will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think MAPFRE Middlesea is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for MAPFRE Middlesea (of which 1 can't be ignored!) you should know about. Is MAPFRE Middlesea not quite the opportunity you were looking for? Why not check out 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.