MAPFRE Middlesea's (MTSE:MMS) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of MAPFRE Middlesea p.l.c. (MTSE:MMS) has announced that it will be increasing its dividend by 34% on the 24th of May to €0.0731, up from last year's comparable payment of €0.0546. This makes the dividend yield about the same as the industry average at 3.9%.

View our latest analysis for MAPFRE Middlesea

MAPFRE Middlesea's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, MAPFRE Middlesea was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share could rise by 6.8% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €0.025 in 2014, and the most recent fiscal year payment was €0.0546. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. MAPFRE Middlesea might have put its house in order since then, but we remain cautious.

MAPFRE Middlesea Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that MAPFRE Middlesea has been growing its earnings per share at 6.8% a 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.

Our Thoughts On MAPFRE Middlesea's Dividend

In summary, while it's always good to see the dividend being raised, we don't think MAPFRE Middlesea's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for MAPFRE Middlesea you should be aware of, and 1 of them is significant. If you are a dividend investor, you might also want to look at our curated list of high yield 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.