MAPFRE Middlesea's (MTSE:MMS) Upcoming Dividend Will Be Larger Than Last Year's

MAPFRE Middlesea p.l.c.'s (MTSE:MMS) dividend will be increasing from last year's payment of the same period to €0.0546 on 23rd of May. This makes the dividend yield about the same as the industry average at 3.3%.

Check out 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. Based on the last payment, MAPFRE Middlesea's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS could expand by 0.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.025 in 2013, 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.

Dividend Growth May Be Hard To Achieve

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. Unfortunately, MAPFRE Middlesea's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company has been growing at a pretty soft 0.7% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

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. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for MAPFRE Middlesea you should be aware of, and 2 of them are a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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