Here's What We Like About My Food Bag Group's (NZSE:MFB) Upcoming Dividend

My Food Bag Group Limited (NZSE:MFB) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase My Food Bag Group's shares before the 31st of May in order to be eligible for the dividend, which will be paid on the 16th of June.

The company's upcoming dividend is NZ$0.04 a share, following on from the last 12 months, when the company distributed a total of NZ$0.08 per share to shareholders. Based on the last year's worth of payments, My Food Bag Group stock has a trailing yield of around 9.0% on the current share price of NZ$0.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for My Food Bag Group

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. Its dividend payout ratio is 85% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 27% of its free cash flow in the past year.

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.

Click here to see how much of its profit My Food Bag Group 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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see My Food Bag Group has grown its earnings rapidly, up 27% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

Unfortunately My Food Bag Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy My Food Bag Group for the upcoming dividend? My Food Bag Group's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks My Food Bag Group is facing. Our analysis shows 1 warning sign for My Food Bag Group and you should be aware of it before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.